Ottawa's Mitel Networks to buy Polycom video conference business for US$1.96B

TORONTO – Mitel Networks Corp. has a friendly deal to pay US$1.96 billion in cash and stock for Polycom Inc., a similarly sized Silicon Valley company with global expertise in workforce collaboration and video conferencing.

Ottawa-based Mitel — one of the original tech companies in what has been called Silicon Valley North — said Friday that Polycom will complement its own expertise in voice communications for business.

“We first approached Polycom in July, or about 10 months ago, and have been engaged in negotiations for some time,” Mitel CEO Rich McBee told analysts in a conference call to discuss the deal.

“Bringing these two companies together creates a compelling opportunity to unlock substantial market and shareholder value.”

McBee said that there will be some overlap that requires job cuts or reassignments as Mitel’s workforce grows to 7,700 employees from 4,500, but he said it’s too soon to know which positions will be cut or how many people will be leaving.

“The reality is, in a acquisition like this, the majority of employees will be unaffected — a small portion of the employee base,” he said. “The key thing is keeping the business going. That’s very important.”

Under the plan outlined Friday, Mitel will keep its name, its corporate headquarters will remain in Ottawa, and its directors will still have a majority on a board that includes two seats for Polycom representatives. Mitel co-founder Terry Matthews will remain board chairman, McBee will remain chief executive and Steve Spooner will remain chief financial officer.

Mitel is offering Polycom shareholders US$3.12 cash and 1.31 Mitel shares for each share of Polycom stock (Nasdaq:PLCM), or the equivalent of US$13.68 based on the recent value of Mitel’s stock (TSX:MNW) (Nasdaq:MITL).

That would be 22 per cent above Polycom’s stock value prior to reports a week ago that a deal was in the works. The stock portion of the offer would also entitle Polycom to have two representatives on the Mitel board of directors. Mitel co-founder Terry Matthews will remain chairman of the board.

The deal is expected to close in the third quarter, without significant impediments from regulators or shareholders.

McBee said it has carefully looked at how the deal will be seen in various jurisdictions and believes it won’t be hindered by the U.S. Treasury Department’s recent crackdown on “tax inversion” deals.

“As we file our taxes, there will be a jurisdiction by jurisdiction (decisions about taxation of revenue). If we disagree about that, we’ll figure it out. . . . From what we’ve been told, we’ll be fine.”

There have been reports that Elliott Management, which owns minority stakes in both companies, had been calling for months for a merger of the two companies. The companies said Friday that Elliott was supporting the deal.

— Follow @DavidPaddon on Twitter.

Note to readers: This is a corrected story. An earlier version said Mitel had 1,300 employees at the end of 2015.