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Mitel Networks Corp. is acquiring ShoreTel Inc. for $430 million, three years after the latter unified communications provider rejected a much higher offer from the Canadian telecommunications company. The deal, announced this week, will double Mitel's cloud business and provide it with a bigger footprint in the United States.
Mitel agreed to pay ShoreTel stockholders $7.50 a share, a 28% premium over Wednesday's closing stock price. The acquisition, which is expected to close by the end of September, will bring to Mitel an additional $350 million in annual revenue and a twofold increase in its cloud business, said Todd Abbott, head of global sales at Mitel. Most of ShoreTel's sales are in the U.S.
In 2014, ShoreTel rejected as too little a $574 million offer by Mitel. Since then, ShoreTel has not been as successful as it expected in the cloud services market, said Bern Elliot, an analyst at Gartner. ShoreTel launched its cloud-based communications platform, called Connect, a year after turning away Mitel.
"They thought they were going to be more successful with that product," Elliot said. "It just turned out that the market was more competitive than they expected."
ShoreTel, however, did a good job at selling its cloud services to organizations using the company's on-premises gear, Abbott said. Almost half of ShoreTel's revenue comes from cloud subscriptions.
"They've actually done a better job [selling to customers] than Mitel," he said.
Mitel banks on hybrid cloud with ShoreTel acquisition
Todd Abbotthead of global sales, Mitel
Mitel believes it can expand that success to businesses that want to move to a hybrid unified communications (UC) environment comprised of Mitel on-premises products and ShoreTel cloud services. Mitel expects the "vast majority" of its customers to go hybrid, which will drive company growth.
"Clearly, the valuation of our company and the return to shareholders is going to come from leveraging an install base and moving it to the cloud," Abbott said.
Mitel and ShoreTel have overlapping on-premises IP PBX systems, which include voice switches, IP phones and other products. Mitel, however, does not see a problem with continuing to support ShoreTel's installed base, because the goal is to sell it cloud-based applications.
"If you own the premise, you've got an inherent advantage to own that customer in the cloud," Abbott said.
Within 30 to 90 days of closing the ShoreTel acquisition, Mitel plans to release a detailed product roadmap for the combined company, Abbott said. "We don't [just end] products, but we certainly will put our development more into the cloud side to deliver new capabilities into those infrastructures."
Mitel wins and losses before ShoreTel acquisition
Mitel has been growing revenue through acquisition to try to reach the size necessary to compete with larger competitors, such as Cisco and Microsoft. "Size does matter," Abbott said. "You need the size to fund the R&D and to drive the innovation."
Mitel's acquisition scorecard is mixed. In 2014, it completed the $374 million purchase of Aastra, an enterprise communications vendor that strengthened Mitel's market position in Western Europe. In May 2017, it bought Toshiba's UC assets after the Japanese conglomerate announced two months earlier that it was winding down its North American telecommunications business as part of a global restructuring.
Mitel's failures include the $560 million acquisition in 2015 of mobile carrier Mavenir. Mitel sold the company the following year. Also in 2016, Mitel came close to buying Polycom, but private equity firm Siris Capital won with a higher offer.
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