Mitel Increases Bid for ShoreTelMitel Increases Bid for ShoreTel
Not to be deterred by ShoreTel's two previous rejections, Mitel submits another bid, upping the purchase price by 40 cents a share while pleading its case with unnamed shareholders.
November 10, 2014
Not to be deterred by ShoreTel's two previous rejections, Mitel submits another bid, upping the purchase price by 40 cents a share while pleading its case with unnamed shareholders.
Mitel CEO Rich McBee has written to the chairman of ShoreTel's board of directors with an increased offer for a proposed acquisition, along with some strong words about ShoreTel's stiff-arming of Mitel's two previous buyout offers.
McBee's offer ups the ante by 40 cents a share for ShoreTel's outstanding stock, which would raise the value of the deal from $540 million to $574 million. While Mitel's initial offers of $8.10/share were in cash, Mitel is not increasing the cash portion of the new offer. Instead, the additional 40 cents-a-share would come in the form of Mitel stock, according to McBee's letter.
The offer suggests that Mitel is serious about consolidating with ShoreTel. However, it's also likely to provoke complaints from ShoreTel and its supporters that the continued acquisition offers--regardless of whether they eventually go through or not--also serve a strategic purpose of hobbling ShoreTel in the marketplace by creating uncertainty among potential ShoreTel customers. Those complaints were aired in response to this No Jitter post, as well as in ShoreTel's official response to Mitel's offers of last month. In that response, ShoreTel Chairman Chuck Kissner complained, "Mitel's opportunistic offer attempts to acquire ShoreTel just before its most significant new product launch, while ShoreTel's business is transforming from a model largely based on one-time product and software sales to a recurring revenue model driven by its growing hosted services business, and only shortly after it has expanded its channel partner program to target growth in cloud-based solutions."
In his most recent letter to ShoreTel's board, McBee takes a harder tone than his previous communication, opening with the complaint, "I am disappointed that your Board of Directors has rejected our proposal, and further disappointed by the lack of engagement and your refusal to even discuss a potential transaction on behalf of ShoreTel's shareholders."
McBee also reveals in the letter that he has approached unnamed large ShoreTel shareholders independently: "While you have decided not to engage with us directly, we have had discussions with a number of your largest shareholders regarding our acquisition proposal," he writes. "They support the logic and understand the benefits of a combination of our two companies, indicating an interest in participating in the upside of a combined organization."
Those shareholders expressed three major areas of concern, according to McBee in his letter: "cloud growth, recurring revenue and operational efficiency." In response to those issues, McBee writes that a Mitel-ShoreTel combination would:
"Create the industry's fastest growing cloud business with #1 market share by revenue and #2 market share by recurring cloud seats."
"Achieve $450 million in annual recurring revenue."
"Deliver significant near-term operational and execution efficiencies," though he gave no specifics on how exactly these would come about, or any estimate of how much those efficiencies would amount to in dollars. He did, however, assert that, "ShoreTel is challenged to deliver meaningful profitability while executing on its strategy."
"Create the industry's fastest growing cloud business with #1 market share by revenue and #2 market share by recurring cloud seats."
"Achieve $450 million in annual recurring revenue."
"Deliver significant near-term operational and execution efficiencies," though he gave no specifics on how exactly these would come about, or any estimate of how much those efficiencies would amount to in dollars. He did, however, assert that, "ShoreTel is challenged to deliver meaningful profitability while executing on its strategy."
A ShoreTel spokesperson indicated that the company will have a response later today.
Update ShoreTel issued a statement this afternoon, with no reaction beyond confirming receipt of Mitel's latest offer and stating:
"Consistent with its fiduciary duties, ShoreTel's Board of Directors (the "Board"), in consultation with its independent financial and legal advisors, will carefully review and evaluate the revised proposal to determine the course of action that it believes is in the best interest of the Company’s stockholders."
