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ShoreTel products unlikely to survive Mitel acquisition

The $540 million Mitel acquisition bid for ShoreTel is about the smaller rival's U.S. customers, not its UC products and services.

If Mitel Networks is ultimately successful in acquiring rival ShoreTel, then many of ShoreTel's overlapping unified...

communications products will likely be replaced with Mitel technology, experts say.

Canadian telecommunications provider Mitel disclosed Monday that it made a $540 million bid for ShoreTel in early October. Mitel went public with the offer after ShoreTel, based in Sunnyvale, Calif., rejected it.

ShoreTel confirmed receiving the unsolicited bid of $8.10 per share in cash, which amounts to a 24% premium over its closing stock price on Friday. ShoreTel said it was reviewing the Mitel acquisition offer with its financial and legal advisers.

Mitel wants ShoreTel for its customers in the U.S., where Mitel is not nearly as strong as it is in the U.K. and Europe, industry observers say. Fully 90% of ShoreTel's customers are in the U.S.

In addition, buying ShoreTel would knock out a fierce rival that has competed effectively against Mitel, Avaya and other UC vendors, said Irwin Lazar, analyst for Nemertes Research. One product that Mitel might be particularly interested in acquiring is ShoreTel Sky, a cloud-based phone system that has outpaced Mitel's competing product.

A Mitel takeover would likely result in many of ShoreTel's products, both cloud and on-premises, going away, because of the extensive amount of product overlap, Lazar said.

If you're making this kind of acquisition, you're not going to have any kind of savings by continuing to maintain two completely separate, overlapping platforms.
Irwin Lazaranalyst, Nemertes Research

"If you're making this kind of acquisition, you're not going to have any kind of savings by continuing to maintain two completely separate, overlapping platforms," he said. "Something's got to go, and more than likely that would be ShoreTel."

While agreeing that some ShoreTel products would be discontinued, Frost & Sullivan analyst Robert Arnold expected those products that are stronger than Mitel's to remain.

"It's not necessarily a death knell for the ShoreTel product line," he said.

Mitel has said that it plans to grow its UC market share through acquisition. In February, it completed the $374 million purchase of Aastra, an enterprise communications vendor that strengthened Mitel's market position in Western Europe.

However, the Aastra acquisition brought very few overlaps in terms of geography and channel partners, Gartner analyst Steve Blood said in an email.

The ShoreTel purchase is similar to Mitel's $723 million acquisition of Inter-Tel in 2007. The merger created a company that was twice the size of the original Mitel and set the groundwork for a 2010 initial public offering that fell far below Wall Street expectations.

"Inter-Tel was Mitel's last directly competitive acquisition," Blood said. "And I'm sure there are a few people at Mitel that would agree that merger didn't go so well."

Even if Mitel fails to buy ShoreTel, there will be other acquisitions in the UC market, which has too many vendors providing on-premises products and cloud-based services, Blood said.

"Acquisition is inevitable," he said. "[And] there will be winners and losers along the way."

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