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Mitel's Bid for ShoreTel: Right Move or Too Much Too Soon?
In a bit of Monday madness, as we reported earlier today, Mitel went public with its intention to buy ShoreTel -- an unexpected gambit, but one that's in keeping with growing trends in the IP PBX market. Consolidation, industry watchers agree, is likely to continue as vendors strategize on how best to move forward given flat sales.
What's not so clear, however, is whether this particular move makes sense. Mitel, with an offer amounting to roughly $540 million, certainly seems to think so. It aims to acquire all of ShoreTel's outstanding stock, at $8.10 per share, or, as Mitel CEO Rich McBee wrote in a letter to ShoreTel Chairman Charles Kissner, "a 24% premium to Friday's closing price and a 30% premium to ShoreTel's enterprise value."
On the other hand, ShoreTel, which earlier this month rejected Mitel's initial outreach, doesn't seem too keen on being acquired. In an official statement issued late this morning, ShoreTel confirmed that it received an unsolicited offer from Mitel and said only that the board and its advisors "will carefully review and evaluate the Proposal and determine the course of action that it believes is in the best interest of the Company's stockholders." In addition, the company advised stockholders not to take any action at this time.
We reached out to No Jitter contributors for their take on Mitel's bid and ShoreTel's reaction, as well as larger implications.
Irwin Lazar, vice president and service director at Nemertes Research, said the move "certainly makes sense from Mitel's standpoint," particularly given the strong growth ShoreTel has seen for its cloud platform among small and medium businesses (SMB). "By acquiring ShoreTel, Mitel takes out one of the biggest competitors in the US market and gains access to ShoreTel's dealer network," Lazar told us.
Given product overlap, "this is much more of an acquisition of market share than an attempt to acquire a company for its technology," Lazar added.
However, Henry Dewing, an independent industry analyst, raises a cautionary note about Mitel's plans. It may be too soon on the heels of the company's merger with Aastra: "Adding more scale may over-tax the management team," he said.
"Between the three companies they have tremendous reach in terms of channels, agents, and resellers – combining those channel operations without losing ground and momentum in the face of intense recruitment efforts from firms like Avaya, Siemens, Cisco and Microsoft will be difficult," Dewing explained. "Management will have to rapidly define and announce sales and GTM responsibilities. Customers and channels must see a clear path forward for their existing installations, their existing relationship with Mitel, and Mitel's roadmap."
In the end, Dewing added, Mitel's continued expansion horizontally may turn out to be not such a great strategy. "Within a matter of years, UC&C solutions will be 'under the covers,' hidden beneath a layer of open APIs as communication and collaboration embeds itself more deeply into business application and processes."
That said, Dewing did note that ShoreTel has done the best job among competitors in integrating business applications -- "so perhaps that is the true strategic imperative being satisfied by this deal -- not just scale."
Carrying on with a strong SMB cloud strategy will be an imperative should the merger come to fruition -- "a clear path forward to a cloud-based infrastructure for the midmarket could be a strategic game changer," Dewing said. "The ability to work with cloud solutions ... to enable SMBs to leverage the speed to deployment, flexibility and OpEx structure of aaS offerings are keys to creating a sustainable, defensible competitive advantage against less-flexible 800 lb. gorillas in the market."
And, speaking of those 800 lb. gorillas -- don't be surprised if Mitel's move and ShoreTel's resistance doesn't spur those larger players to action, said Lazar, singling out Avaya as a potential Mitel rival in a bid to buy ShoreTel. "[It] could leverage ShoreTel's platform to jumpstart its own efforts to compete in the cloud UC market for the SMB."
It is indeed getting interesting in the UC market, as Tim Banting, principal analyst with Current Analysis, pointed out in a comment on No Jitter's announcement post. He gives us lots food for thought, with questions such as: Which vendors will end up being the dominant three? Is this essentially a pursuit of installed base, a la Avaya and Nortel? How much consolidating of cloud platforms will Mitel need to do if this merger takes place?
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