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Mitel backs off its ShoreTel domination plans, but should customers still be worried?

Mitel has officially shelved its plans for a ShoreTel takeover.

Mitel pulled its third acquisition proposal — several days prior to the Nov. 20 deadline — due to ” the repeated refusal of ShoreTel’s Board of Directors to engage in discussions of any kind regarding a potential transaction,” according to a press release from Mitel.

The UC vendor came forward with an unsolicited bid to buy ShoreTel for $540 million back in November, which ShoreTel scoffed at. In a press release, ShoreTel’s board of directors said it “unanimously” concluded that “Mitel’s proposal significantly undervalues ShoreTel and fails to reflect the upside of ShoreTel’s growth initiatives and technology developments.”

Mitel was unfazed at first, following up with two more offers. The final bid would have put the buyout at $574 million. When ShoreTel still refused to entertain the idea, Rich McBee, Mitel’s CEO, brazenly wrote a letter to ShoreTel’s board, noting that since the board wouldn’t engage with him, he had approached unnamed large ShoreTel shareholders independently regarding the acquisition.

In the end, however, Mitel has decided to take its offer off the table.

Mitel has good reason for wanting ShoreTel. While Mitel’s UC products are popular in Canada and Europe, ShoreTel has a solid customer base in the U.S. ShoreTel also has a very strong UCaaS offering — ShoreTel Sky — which is especially appealing at a time when businesses are becoming very interested in the prospect of moving their communication off-premises.

Since cloud-based UC is gaining popularity very rapidly in the telephony market and ShoreTel is a little ahead of the game in that space, Mitel’s proposal makes sense, said Joe Rittenhouse, president of business development for Converged Technology Professionals Inc., a technology consulting firm and ShoreTel partner. “It’s something worthy of acquiring, but I’m glad it didn’t happen,” he said.

With formidable leaders in the UC space — including Cisco and Microsoft — smaller vendors are forced to fight over scraps. Mitel’s unsolicited offers may have created uncertainty among prospective ShoreTel customers, causing them to worry about Mitel discontinuing or ending support of Shoretel equipment. ShoreTel customers may also have worried about a forced migration to Mitel products. Such doubts could cut ShoreTel off at the knees in an already competitive UC market.

“[The bid] caught us off guard, that’s for sure. It made us reevaluate where we were and where the industry is headed,” Rittenhouse said. “But if anything, in the end, it reaffirmed the position we’re going in as far as offering cloud services.”

Rittenhouse said that existing ShoreTel customers probably felt more confident about their investments after seeing ShoreTel’s reaction to the Mitel offers. “We were actually concerned it would have a negative effect, but because ShoreTel rejected [the bids] so quickly, our existing [customer] base wasn’t worried,” he said.

But just because Mitel has called it quits, doesn’t mean other suitors won’t step up to the plate for a chance at ShoreTel. Consolidation is a certainty in the already crowded UC market.

“I think there is going to be consolidation eventually, but ShoreTel is also carving out what will be a niche market and good hybrid approach, so I think that would be giving up before they had a chance to play the game,” Rittenhouse said.

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What should worry ShoreTel customers and give pause to the apparently smug board would be the consistent failure of ShoreTel to make any profit in 10 years.  A few years of growth and development without net profit can work, but how many years can that continue, apparently funded by investors, without becoming sort of a Ponzi scheme?

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