Activist hedge fund Elliott Management Corp disclosed stakes in U.S. video-conferencing equipment maker Polycom Inc (PLCM.O) and Canadian telecommunications provider Mitel Networks Corp (MNW.TO) and pushed for a combination of the two.
Polycom’s shares were up about 16 percent at US$13.27 in afternoon trading on Thursday, while Mitel’s U.S.-listed shares (MITL.O) were up 17 percent at US$8.22. Mitel’s Toronto-listed shares were up 16 percent at $10.66.
“Polycom must initiate a comprehensive review of all strategic options, and the time for that review is now,” Elliott said in a letter to the company’s board.
Elliott said it would be willing to provide financing for Polycom’s acquisitions.
Polycom said in a statement it would meet with Elliott’s representatives to discuss the hedge fund’s views.
Polycom, which benefited during the 2008 recession from companies looking to cut travel costs, has been struggling with rising competition from Cisco Systems Inc (CSCO.O) and from free video conference software such as Microsoft Corp‘s (MSFT.O) Skype.
Up to Wednesday’s close, Polycom’s shares had fallen about 15 percent this year.
Elliott said it expected an over 80 percent upside to Polycom’s share price by end of 2017 if a Polycom-Mitel merger were to happen.
Polycom has reduced costs by cutting jobs and has also pushed into software to boost sales.
The hedge fund disclosed a 6.6 percent stake in Polycom and a 9.6 percent stake in Mitel. Polycom had a market value of about US$1.53 billion as of Wednesday and Mitel of about $1.10 billion (US$842.9 million).
Canaccord Genuity analyst Prabhakar Gowrisankaran said the merger made sense as the companies had complementary products.
“The big problem they have is that Cisco has everything. So, this combination is going to help go against Cisco,” he said.
Elliott also said it owned a stake in U.S. telecommunications provider ShoreTel Inc (SHOR.O), and pushed for consolidation in the unified communications and collaboration industry.
Mitel had withdrawn a raised offer for ShoreTel last year after the latter refused to engage in any talks regarding a potential transaction.
Elliott did not reveal how much stake it had in ShoreTel. ShoreTel’s shares were up 3.9 percent at US$8.15.
Mitel, which serves business customers with unified communications services, mostly over landline phones, bought U.S.-based Mavenir Systems Inc for US$560 million in April.
Mitel welcomed Elliott’s interest and said it shared the fund’s views on consolidation in the industry. It, however, said it did not comment on specific M&A discussions. Up to Wednesday’s close, Mitel’s shares had dropped more than 34 percent this year.
Update: Based in Ottawa, Mitel is a portfolio investment of U.S. private equity firm Francisco Partners and Canada’s Wesley Clover International Corp.
(Reporting by Abhirup Roy and Lehar Maan in Bengaluru; Editing by Sriraj Kalluvila and Shounak Dasgupta)
(This story has been edited by Kirk Falconer, editor of PE Hub Canada)
Photo courtesy of Shutterstock