Mitel is increasing its bid for unified communications vendor ShoreTel to $574 million in hopes of bringing ShoreTel officials to the bargaining table.
ShoreTel’s board of directors in late October rejected an unsolicited offer of $540 million for the company, saying the bid undervalued its company, which has seen revenue growth over the past several quarters and in April 2015 is expected to launch a single common platform for both its on-premises and cloud-based unified communications (UC) solutions.
In a Nov. 10 letter to ShoreTel’s directors, Mitel CEO Richard McBee said he was disappointed that they had turned down his initial offer without any discussion with Mitel. He also reiterated his belief that a combined Mitel-ShoreTel would create a significant player in the rapidly consolidating UC market that is dominated by the likes of Cisco Systems and Microsoft. In addition, it would benefit ShoreTel, which McBee said is struggling to grow and gain share in the cloud telephony market.
“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 wrote. “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. Specifically, your shareholders identified three key value drivers that they feel are most critical to realizing the potential value of ShoreTel stock and which we believe a combination with Mitel would deliver—cloud growth, recurring revenue and operational efficiency.”
Bringing the two companies together would create the world’s top cloud telephony vendor based on the number of installed seats and would generate more than $45 million of recurring cloud revenue every quarter, McBee said. It would include more than 400,000 installed recurring cloud seats—245,000 from Mitel and 160,500 from ShoreTel—and generate more than $450 million in annual recurring revenue.
A merger also would increase efficiencies in ShoreTel’s operations and would give a boost to ShoreTel’s R&D efforts, he wrote.
McBee said the offer is good until Nov.20. During an interview earlier this month with Bloomberg, the CEO suggested he would up the initial offer, and said he had not ruled out a hostile bid for ShoreTel should the directors continue to shun Mitel’s advances.