Mitel Networks (MITL) to Acquire Polycom (PLCM) in ~$1.96B Deal
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Mitel (Nasdaq: MITL) and Polycom (Nasdaq: PLCM) announced that they have entered into a definitive merger agreement in which Mitel will acquire all of the outstanding shares of Polycom common stock in a cash and stock transaction valued at approximately $1.96 billion. Under the terms of the agreement, Polycom stockholders will be entitled to $3.12 in cash and 1.31 Mitel common shares for each share of Polycom common stock, or $13.68 based on the closing price of a Mitel common share on April 13, 2016. The transaction represented a 22% premium to Polycom shareholders based on Mitel’s and Polycom’s “unaffected” share prices as of April 5, 2016 and is expected to close in the third quarter of 2016, subject to shareholder and regulatory approvals and other customary closing conditions.
New company with shared vision for seamless communications and collaboration
The communications and collaboration industry is undergoing a period of intense change that is rapidly redrawing the competitive landscape and breaking down barriers between previously discrete markets and technology domains. Through a series of strategic acquisitions, Mitel has successfully capitalized on changing market dynamics and transformed the company to help customers operate more efficiently and cost effectively. The combination of Mitel and Polycom will create a new industry leader leveraging Mitel’s recognized leadership as a pioneer in global communications with Polycom’s well-known premium brand and industry-leading portfolio in the conference and video collaboration market.
The combined company will be headquartered in Ottawa, Canada, and will operate under the Mitel name while maintaining Polycom’s strong global brand. Richard McBee, Mitel’s Chief Executive Officer will lead the combined organization. Steve Spooner, Mitel’s Chief Financial Officer, will also continue in that role. On the closing of the proposed transaction, it is expected that Polycom directors will assume two seats on the Mitel board. Once merged, the combined company will have a global workforce of approximately 7,700 employees.
“Mitel has a simple vision - to provide seamless communications and collaboration to customers. To bring that vision to life we are methodically putting the puzzle pieces in place to provide a seamless customer experience across any device and any environment,” said Mitel CEO Rich McBee. “Polycom is one of the most respected brands in the world and is synonymous with the high quality and innovative conference and video capabilities that are now the norm of everyday collaboration. Together with industry-leading voice communications from Mitel, the combined company will have the talent and technology needed to truly deliver integrated solutions to businesses and service providers across enterprise, mobile and cloud environments.”
“Together, Polycom and Mitel expect to drive meaningful value for our shareholders, customers, partners and employees around the world,” said Peter Leav, President and CEO of Polycom. “We look forward to working closely with the Mitel team to ensure a smooth transition and continued innovation to bring the workplace of the future to our customers.”
Global scale and strategic scope provide key customer benefits
The combined global company will offer customers an integrated technology experience supported by an impressive ecosystem of partners. Key market positions include:
- #1 in business cloud communications (i)
- #1 in IP/PBX extensions in Europe (ii)
- #1 in conference phones (iii)
- #1 in Open SIP sets (iv)
- #2 in video conferencing (v)
- #2 in installed audio (vi)
- Installed customer base in more than 82% of Fortune 500 companies
- Deep product integration with Microsoft solutions
- Mobile deployments in 47 of the world’s top 50 economies
- Combined portfolio of more than 2,100 patents and more than 500 patents pending
- Global presence across five continents with approximately 7,700 employees worldwide
Enhanced platform expected to deliver profitable growth with opportunities for synergies and significant debt deleveraging
The combined company will have a significantly larger financial platform with the scope, scale and operating leverage needed to strategically expand in an actively evolving market. Financial highlights of the transaction include:
- Diverse revenue base with pro forma 2015 sales of approximately $2.5 billion
- Strong cash flow generation with pro forma 2015 EBITDA of approximately $350 million
- Strengthened balance sheet with Mitel’s pro forma 2015 net debt leverage reduced from 3.8x to 2.1x
- Expected to be accretive to Mitel shareholders in 2017
- Anticipated operating synergies of approximately $160 million by 2018, driven by supply chain optimization, facilities consolidation and economies of scale
- Source: Synergy Research Group, March 2016
- Source: MZA Limited, March 2016
- Source: Frost & Sullivan, Global Audio Conferencing Endpoints, November 2015
- Source: Synergy Research Group, September 2015
- Source: Q4 2015 UC Market Tracker - Telepresence Market Share Data Reports, February, 2016
- Source: Frost & Sullivan, Global Audio Conferencing Endpoints, November 2015
Each of Mitel’s and Polycom’s Boards of Directors have unanimously approved the transaction and are resolved to recommend that its shareholders vote in favor of the transaction. Mitel’s directors and executive officers, as well as Kanata Research Park and funds managed by Francisco Partners, have entered into voting agreements with Polycom to vote their respective Mitel common shares in favor of the transaction. Polycom’s directors and executive officers have entered into voting agreements with Mitel to vote their respective shares of Polycom common stock in favor of the transaction. In addition, Elliott Management has entered into voting agreements with each of Mitel and Polycom to vote its Mitel common shares and its shares of Polycom common stock in favor of the transaction.
The transaction is expected to close in the third quarter of this year, subject to stockholder approval by Polycom and Mitel, receipt of regulatory approval in certain jurisdictions and other customary closing conditions. Following the closing of the transaction, former Polycom shareholders are expected to hold approximately 60% and current Mitel shareholders are expected to hold approximately 40% of the outstanding Mitel common shares.
Mitel intends to finance the cash portion of the consideration for the acquisition, and the refinancing of its existing credit facilities and those of Polycom, using a combination of cash on hand from the combined business and proceeds from new financing and has received financing commitments from BofA Merrill Lynch of approximately $1.1 billion in the aggregate.
BofA Merrill Lynch is serving as Mitel’s financial advisor, with Paul, Weiss, Rifkind, Wharton & Garrison LLP and Osler, Hoskin & Harcourt LLP providing legal advice to Mitel.
Morgan Stanley is serving as Polycom’s financial advisor, with Wilson Sonsini Goodrich & Rosati providing legal advice to Polycom and Morrison & Foerster LLP providing legal advice to Polycom’s Board of Directors.
Updated Guidance for Mitel First Quarter for the period ended March 31, 2016
While Mitel is still early in the process of closing the quarter ended March 31, 2016, it is expected that revenue and adjusted EBITDA margin will be within the company’s prior guidance range. Based on preliminary information available at this time, Mitel now expects quarterly non-GAAP revenue will be in the range of $270 million to $280 million and adjusted EBITDA margin will be in the range of 7.5% to 9.5%.
Mitel's first quarter 2016 results are planned to be issued before the market opens on Thursday, May 5, 2016. Details of the first quarter 2016 conference call will be confirmed by Mitel in a separate announcement.
Conference Call Information
Mitel and Polycom will host a joint conference call and webcast accompanied by slides today at 8:30 a.m. ET (5:30 a.m. PT) to discuss the transaction. To access via tele-conference, please dial (888) 734-0328. Participants dialing in from outside of Canada and the United States can dial (678) 894-3054.
Live internet access for this call will be available through the Investor Relations section of Mitel’s website at www.mitel.com.
Presentation slides will be available on April 15 in conjunction with this release. To access the presentation slides, please go to the Investor Relations section of Mitel’s website at www.mitel.com or use this link: http://investor.mitel.com/events.cfm.
A rebroadcast of this call will be available on Monday, April 18, 2016 after 9:00 a.m. ET (6:00 a.m. PT). To access the webcast please use this link: http://investor.mitel.com/events.cfm.
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