Mitel Adds More to ShoreTel Bid, Likely not Enough (yet)


Mitel has put some more value on the table for its ShoreTel bid.  The current offer as of this morning, November 10, is $8.50 a share, representing a total value of $574 million for all outstanding shares of ShoreTel.  I suspect Mitel will have to go a bit higher before there's any happiness among the ShoreTel board or shareholders.

Mitel's latest offer breaks down to $8.10 per share in cash—everyone loves cash—and another $.40 per share in Mitel common shares.  The first offer in late October was $8.10 per share in cash, so the current one moves the bar from a 24 percent premium from ShoreTel's closing stock price on October 17, 2014 to a 31 percent premium, with ShoreTel's "enterprise value" moving from 30 to 38 percent.

Since making its first offer, Mitel has waged a PR campaign to convince the ShoreTel board of directors and shareholders that a Mitel-ShoreTel merger would be a good thing for all involved, most especially for ShoreTel shareholders.   Mitel argues that size matters, and has hinted it would pursue a hostile bid if ShoreTel's board doesn't agree to be purchased by November 20.

From the sidelines, tossing in 40 cents of Mitel share value seems a little underwhelming in offering upside for current ShoreTel shareholder, who simply walked away with cash from the first offer. I believe Mitel has one more offer in their pocket with increased common stock.

Mitel could take a bit more dilution, especially if it believes the points it laid out in a November 10 letter to the ShoreTel board.  The merger would create "the industry's fastest growing cloud business with #1 market share by revenue and #2 market share by recurring cloud seats," asserts Mitel, with an entity that would have $450 million in annual recurring revenue.   There is also the whole "near-term operational and execution efficiencies" line, which tends to translate to putting everyone on the same payroll, then firing excess staff from the consolidation.

I don't think Mitel will go crazy with offering its own stock; certainly not offering a $1 in stock for every share of ShoreTel.  The company doesn't want to dilute its current value per share, wanting to keep the value stable for other acquisitions in the future.

Regardless, the next move is by ShoreTel's board.  If the board rejects the second offer without comment, Mitel will most likely wait until the November 20 deadline passes, then move into hostile takeover mode.  If ShoreTel's board starts talking to Mitel, expect a bumped-up offer contingence upon Mitel getting a closer look at ShoreTel's books so it can justify a higher offer to Wall Street and its stockholders.

If the deal does fall through, Mitel may start looking at other targets in short order. A cloud pure play might be taking a run at 8x8 and its customer base.  The longer shot would be privately-held Digium, but I don't see that happening since it's difficult to establish a value on the company due to figuring out what the worth of the Asterisk ecosystem might be. 

Edited by Maurice Nagle

Contributing Editor

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