Mitel Networks Corp (TSX: MNW) (Nasdaq: MITL) has agreed to acquire ShoreTel Inc (Nasdaq: SHOR), a U.S. provider of business communication solutions. The cash deal reflects an equity value of about US$530 million and an enterprise value of about US$430 million. Ottawa-based Mitel said the acquisition, expected to close in the third quarter, will create the second-largest player in the unified-communications-as-a-service market. Mitel, a portfolio investment of Francisco Partners and Wesley Clover International, tried two years ago to buy ShoreTel, but withdrew its bid.
Mitel announces definitive agreement to acquire ShoreTel
Consolidation accelerates Mitel’s move to high-growth UCaaS market
Accelerates Mitel’s path to growth
Delivers attractive shareholder value with $60 million in expected synergies
Moves Mitel into a #2 position in UCaaS market
Expected to be accretive in the first year
OTTAWA and SUNNYVALE, Calif., July 27, 2017 (GLOBE NEWSWIRE) — Mitel (Nasdaq:MITL) (TSX:MNW) and ShoreTel (Nasdaq:SHOR) today announced that they have entered into a definitive merger agreement pursuant to which Mitel will acquire 100% of the outstanding shares of ShoreTel common stock in an all-cash transaction at a price of $7.50 per share, or a total equity value of approximately $530 million and a total enterprise value of approximately $430 million. The purchase price represents a 28% premium to ShoreTel’s closing share price on July 26, 2017.
Stronger together as a global market leader in the rapidly growing UCaaS market
Continuing to deliver its move-to-the-cloud strategy, with this transaction Mitel is accelerating on a growth path by investing further and faster into the UCaaS (Unified Communications as a Service) market as digital transformation accelerates customer demand for cloud-based solutions globally. The combined company will be the #2 player in the UCaaS market, creating a supplier with the scale and technical capabilities to enable customers with new cloud-based solutions and applications.
The combined company will be headquartered in Ottawa, Canada, and will operate as Mitel. Rich McBee, Mitel’s Chief Executive Officer, will lead the combined organization. Steve Spooner, Mitel’s Chief Financial Officer, will also continue in that role.
“This is a very natural combination that enables us to continue to consolidate the industry and take advantage of cost synergy opportunities while adding new technologies and significant cloud growth to our business,” said Mitel CEO, Rich McBee. “Together, Mitel and ShoreTel will be able to take customers to the cloud faster with full-featured, cloud-based communications and applications.”
Uniquely qualified to take customers and partners to the cloud
Together, the combined company will have approximately 3,200 channel partners and an industry-leading portfolio of communications and collaboration solutions. Mitel and ShoreTel are committed to providing continued support and an attractive path forward for all customers and partners – cloud and premise. On closing of the proposed transaction, the combined company will have a global workforce of approximately 4,200 employees.
“With the announcement today, this concludes our comprehensive review of strategic alternatives by delivering a significant cash premium for our shareholders,” said Don Joos, CEO of ShoreTel. “Customers are clearly moving to the cloud at a rapid pace. The combination of Mitel and ShoreTel creates a new UCaaS market leader with a differentiated strategy and solution, and a clear migration path so that no customer is left behind or will have to abandon what they already have to cloud-enable their organization.”
Once the transaction is complete, Mitel will be uniquely positioned to offer all customers the advantages of cloud-based communications. For enterprise customers, ShoreTel’s solutions will strengthen Mitel’s ability to cloud-enable customers with existing premise or mixed estate deployments, creating the technical foundation needed for delivery of next-generation cloud applications.
Size, scale and financial foundation to drive growth
Financial highlights of the transaction include:
Combined sales of $1.3 billion*
Increases Mitel’s total recurring revenue to 39% of total revenue*
More than doubles Mitel’s UCaaS revenue to $263 million*
Significant synergy opportunity targeted at $60M in annual run rate spend expected to be achieved over two years
Expected to be accretive to non-GAAP EPS in the first year
*based on trailing twelve months combined to March 31, 2017
The transaction will be completed through a cash tender offer for all of the outstanding shares of ShoreTel common stock, followed by a merger, which will not require approval of ShoreTel’s stockholders, in which remaining shares of ShoreTel common stock will be converted into the right to receive the same $7.50 cash per share price paid in the tender offer. ShoreTel’s Board of Directors has recommended that ShoreTel stockholders tender their shares in the offer. In connection with the execution of the merger agreement, ShoreTel’s directors and executive officers, have entered into tender support agreements with Mitel pursuant to which they have agreed to tender their shares to Mitel’s offer.
Mitel intends to finance the consideration for the acquisition and associated transaction expenses using a combination of cash on hand from the combined business, drawings on its existing revolving credit facility and proceeds from a new fully underwritten $300 million term loan maturing in 2023. The existing term loan and revolving credit facility will remain in place, with the Company having already obtained the requisite majority consent to certain amendments which accommodate the acquisition and the incremental financing. BMO Capital Markets is leading the new term loan facility with Citizens Bank, N.A., HSBC Bank Canada and Canadian Imperial Bank of Commerce serving as Joint Lead Arrangers and Joint Bookrunners. Citizens Bank, N.A., lead on the existing amended facilities, will act as administrative agent for these and the new term loan. EA Markets LLC provided Mitel with independent advisory and transaction services in conjunction with the arrangement and structuring of the new financing.
The transaction is expected to be completed in the third quarter of 2017, subject to ShoreTel stockholders having tendered shares representing more than 50% of the outstanding shares of ShoreTel common stock, certain regulatory approvals having been obtained and other customary conditions to the tender offer having been satisfied.
Jefferies LLC is serving as financial advisor to Mitel, Paul, Weiss, Rifkind, Wharton & Garrison LLP is serving as legal advisor to Mitel and Osler, Hoskin & Harcourt LLP is serving as legal advisor to Mitel in connection with the financing. J.P. Morgan Securities LLC is serving as financial advisor to ShoreTel and Fenwick & West LLP is serving as legal advisor to ShoreTel.
Conference Call Information
Mitel is hosting an investor conference call and live webcast today, Thursday, July 27, 2017 at 8:30 a.m. ET (5:30 a.m. PT) to discuss this announcement, as well as its financial results for the second quarter ended June 30, 2017. To access the conference call, dial 888-734-0328. Callers outside the U.S. and Canada should dial 678-894-3054. The live webcast will be accessible on Mitel’s investor relations website at www.mitel.com. It will be archived and is expected to be available on this site for replay on or about Friday, July 28, 2017 after 12:00 p.m. ET. We have also provided a slide deck to supplement comments made specific to this transaction as well as to help illustrate our financial results. It has been posted on www.mitel.com. Our Form 10-Q is expected to be filed with the U.S. Securities and Exchange Commission (the “SEC”) and Canadian securities regulatory authorities on July 27, 2017 and will include our complete financial results for the quarter ended June 30, 2017.
A global market leader in enterprise communications powering more than two billion business connections, Mitel (Nasdaq:MITL) (TSX:MNW) helps businesses and service providers connect, collaborate and provide innovative services to their customers. Our innovation and communications experts serve more than 60 million business users in more than 100 countries. For more information, go to www.mitel.com and follow us on Twitter @Mitel.
Mitel is the registered trademark of Mitel Networks Corporation.
All other trademarks are the property of their respective owners.
ShoreTel (NASDAQ:SHOR) provides businesses worldwide with communication solutions that make interactions simple. From business phone systems, unified communications and contact center solutions to a fully hosted voice and SMS development platform, ShoreTel delivers unmatched flexibility and ease for companies looking to increase productivity and drive innovation. ShoreTel offers solutions in the cloud, onsite or a hybrid of both, giving customers the freedom to choose the best fit for their business needs now and in the future. Headquartered in Sunnyvale, Calif., ShoreTel has offices and partners worldwide. For more information, visit shoretel.com.
Mitel Contact Information:
ShoreTel Contact Information:
Photo courtesy of Mitel Networks Corp