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Mitel Networks Corp. agreed to buy Polycom Inc. for cash and stock in a deal valued at about $1.96 billion, as the Canadian technology pioneer adds video conferencing in its bid to dominate business communications.
Polycom stockholders will be entitled to $3.12 in cash and 1.31 Mitel common shares for each common share of Polycom.
That's $13.68, based on the closing price of Mitel on April 13, the company said in a statement. The price represents an 11 percent premium compared with Polycom's close of $12.27 on Thursday in New York.
Shares of Mitel plunged 8.1 percent to C$9.26 at 10:51 a. m. in Toronto after the company said first quarter earnings would be below analysts estimates on a conference call to discuss the deal. Polycom fell 1 percent to $12.16 in New York after falling as much as 2.6 percent.
The deal is the last major step in an acquisition push that involved the purchase of Mavenir Systems last year and Aastra Technologies in 2014, Mitel Chief Executive Richard McBee said on the conference call.
Adding video conferencing to Mitel's business communications services "really ties in the lost piece," he said.
The combined company will have a blended tax rate of around 20 percent, Chief Financial Officer Steven Spooner said on the call. He insisted it was not a tax inversion, a practice where U.S. companies will merge with foreign firms and move their headquarters abroad to avoid higher corporate taxes in the United States.
President Obama called inversions insidious loopholes and praised new rules revealed last week by the Treasury Department that aim to limit them. Mitel has carefully studied the new rules, Spooner said.
Mitel, co-founded in the early 1970s by Chairman Terry Matthews, was one of the original companies that kicked off the growth of Canada's technology industry.
Under Matthews, who moved to Canada from Wales to work at the company that would later become Nortel Networks, Mitel applied software and microprocessor technology to telecommunications, growing rapidly and expanding into semiconductors and business communications.
The combined company will have annual sales of about $2.5 billion, be headquartered in Ottawa, and will operate under the Mitel name while maintaining Polycom's global brand.
McBee expects the deal to result in about $160 million in cost savings by the end of 2017. Bloomberg first reported news of talks between the companies on April 5.
Activist investor Elliott Management Corp. said on Oct. 8 it had taken stakes of about $100 million in both San Jose, Calif.-based Polycom and Mitel and urged them to combine.
Elliott said the companies face intense competition from larger rivals such as Huawei Technology Co. and Cisco Systems Inc. and should acquire peers to increase market share.
"The combination of Mitel and Polycom makes perfect strategic and financial sense," Jesse Cohn, who heads Elliott's U.S. activist efforts, said in a statement. The combined company will be better positioned to generate cash and pull of more acquisitions, he said.
It's not the first time Cohn has successfully agitated for a sale of a technology company. Companies the firm has targeted that have gone on to be sold include EMC, Informatica, Riverbed Technology, BMC Software, Compuware, Novell and Blue Coat Systems, among others.