Mitel Out as Polycom to Go Private

Little more than a week ago, Mitel CEO Rich McBee told Bloomberg TV that he expected his company's gambit to acquire Polycom to close "sometime in early August" following a July 29 shareholder vote. But as we learned this morning with news that private equity firm Siris Capital Group would instead be buying Polycom, it turns out McBee's confidence was misplaced.

Siris bested Mitel's $1.96 billion offer, announced April 15, with a deal valued at about $2 billion in cash, or $12.50. Pending shareholder and regulatory approvals, Polycom said in an official press statement it expects this acquisition to close in third-quarter 2016.

Mitel, in its own official press statement, announced that it had received notice of the competitive offer from Polycom and has opted to waive its matching rights. And so, rather than walking away with a suite of conferencing and phone products, engineering prowess, and a global network of channel partners, as No Jitter reported at the time of the initial bid, Mitel instead pockets a $60 million termination fee.

While expressing his disappointment that "this particular transition will not move forward," McBee explained the company's decision not to exercise its matching rights: "Mitel shareholders, customers and employees know that we follow a rigorous and disciplined approach to mergers and acquisitions. The agreement announced on April 15 resulted from a detailed due diligence and negotiation process that we feel accurately determined fair value for Polycom. We feel it would not be in the best interest of Mitel shareholders to adjust the existing agreement."

Perhaps he's already onto Mitel's next target. "I am confident in Mitel's future as an industry leader and as a market consolidator," his official statement continued.

If you do the math, it's hard not to think Polycom's decision to accept the Siris offer and take itself off the public market had more to do with factors beyond the immediate dollars and cents of the deal. Subtract the $60 million payout from Siris's $2 billion offer and the result, $1.94 billion, falls shy of the $1.96 billion Mitel offer that had been on the table. With Polycom being one of Microsoft's most significant technology partners for UC, its ownership by a competitor in enterprise communications no doubt could create a rather sticky situation -- no matter how much everybody might have agreed to play nicely together to best serve customers. Polycom is also a key supplier to many cloud communications providers who compete with Mitel in the UCaaS space--another complication.

Industry watchers are at odds about whether this is all for the best or not. While Zeus Kerravala, principal analyst with ZK Research, called the failed Mitel-Polycom merger "unfortunate," for example, Wainhouse Research co-founder Andrew W. Davis said the "good" of the deal was never easy to discern in the first place (see Kerravala's earlier posts "Mitel Finally Acquires Polycom" and "Mitel Merger: Polycom UCaaS Partners Need Not Fret," as well as "Mitel Acquires Polycom -- the Good, the Bad, and the Ugly,") which Davis co-wrote with Ira M. Weinstein, senior analyst and partner at Wainhouse.

"Rich McBee's thesis is correct in that the communications industry is dominated by not one but two 800-pound gorillas, making it difficult for the small vendors to compete. A Mitel-Polycom merger was the right thing for both companies and the industry as it would have created a third vendor of size," Kerravala said.

However, he added, "I applaud Mitel ... for not overpaying for the Polycom asset -- while it would have made a nice addition, there are other options to pursue."

In an official statement, Siris Executive Partner Dan Moloney cited the industy's transition from an on-premises to cloud model as an impetus for the Polycom deal and noted the company's fit with Siris' "investment focus on mission-critical telecommunications businesses." Collaboration provider PGi is among the other UC-related companies Siris has taken private.

That said, Davis said, seeing how Siris reorganizes the Polycom team will be "interesting."

This is an updated version of our original posting.

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