ShoreTel Rejects Mitel Buyout OfferShoreTel Rejects Mitel Buyout Offer

Where do the two companies go from here -- and who else might jump in?

ShoreTel announced yesterday that its board of directors had unanimously rejected Mitel's offer to acquire the company for $540 million. The board cited its beliefs that the offer undervalues ShoreTel, that the right strategy is to remain a standalone company, and that its financial results validate that strategy.

ShoreTel Chairman Chuck Kissner described the Mitel offer as "financially inadequate," and concluded: "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."

So where do the two companies go from here? Mitel could raise its offer, or another potential buyer could come in with a higher offer. At this point, we've seen no particularly clear signs that other industry players are preparing a bid.

I reached out to Mitel for a reaction to the ShoreTel decision, but a spokesperson said the company would offer no further comment at this time.

As for likely scenarios going forward, I exchanged emails with one industry observer who had an interesting twist on some of the speculation about potential ShoreTel suitors. When Mitel announced its bid last week, names like Avaya came up as possible alternative acquirers; the theory was that CPE vendors who need a stronger cloud play might be attracted to the ShoreTel Sky hosted offering.

But my correspondent suggested that the incentives might actually push in the opposite direction--that cloud players like Ring Central or 8X8 might want to consider taking a run at ShoreTel. A consensus is emerging that, at least in the medium and large-enterprise segments, a hybrid cloud-CPE model will dominate for quite some time, my source suggested. And so just as a CPE vendor needs a cloud play, cloud vendors will increasingly need a CPE play to win deals with enterprises that just aren't willing to outsource everything to a hosted communications service.

My correspondent also suggested a persuasive reason for Mitel to consider upping its offer in order to snare ShoreTel. Most enterprise RFPs typically go out to the top three to four vendors, so if Mitel can solidify its place behind Cisco, Avaya, and Microsoft (which doesn't have the market share but certainly has the mindshare and positioning), it has a much better shot at winning deals.

Indeed, that's been my experience at countless customer and partner events for vendors on the North American second tier--where Mitel, ShoreTel, Alcatel-Lucent, Unify, and others dwell. The common complaint is always, "Our products are great, but we can't get a seat at the table" when it comes to winning deals. There's generally some assertion that, "When we compete, we win."

With its previous acquisitions, Mitel clearly seems determined to compete at this level. Whether that means ponying up more to snag ShoreTel remains to be seen.

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