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    Polycom, Mitel Reportedly in Merger Negotiations

    By
    Jeff Burt
    -
    March 16, 2016
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      tech business

      Communications technology vendors Mitel and Polycom reportedly are in merger talks, an idea that was first floated several months ago by activist investor Elliott Management, which bought large stakes in both companies.

      Citing unnamed sources, Reuters reported that Mitel made the initial overture to Polycom, though the structure of such a deal had not yet been worked out. There also is no guarantee that such a merger will happen.

      However, it’s a deal that Elliott officials hope will go through. The hedge fund in October 2015 grabbed a 6.6 percent stake in Polycom and a 9.6 percent stake in Mitel, and almost immediately floated the idea of the two companies merging to create a larger player in a crowded and changing the unified communications and collaboration (UCC) market dominated by the likes of Cisco Systems and Microsoft and populated by a growing number of smaller vendors pushing their cloud- and software-based offerings.

      In a letter in October to Polycom CEO Peter Leav and its board of directors, Elliott officials argued that a combination of the two vendors would put them in a better competitive position.

      “Elliott strongly believes a combination of mid-tier UCC vendors will create greater scale, significant synergies and a meaningful valuation uplift for stockholders,” Elliott officials said in the letter. “Mitel is a good platform vehicle to roll up the sector and is also an attractive merger candidate for Polycom.”

      Executives with both companies at the time said they had received Elliott’s proposals, but made no commitment to the merger idea.

      Combining the two vendors now may be rushing the issue, according Zeus Kerravala, principal analyst with ZK Research. Like others companies in the market, both Mitel and Polycom have gone through significant transitions. Both vendors are on the upswing, and their roadmaps should be given time to mature before a combination is considered, Kerravala told eWEEK.

      “On paper, it’s a good idea,” he said. “It’s taking two companies that don’t have a lot of overlap in their portfolios. … But I think it’s premature.”

      Mitel officials have been building up the company’s offerings to embrace the trend in communications toward mobility and the cloud, and that has included several acquisitions, including Aastra Technologies in 2013 for its cloud business and Mavenir Systems last year. Mavenir sold cellular network software to telecommunications companies.

      The deals also were part of President and CEO Rich McBee’s larger belief that the communications market is ripe for consolidation, and that Mitel would be a buyer.

      For Polycom, the company has been waiting for longtime partner Microsoft to embrace video conferencing in its larger communications strategy, and that appears to be happening with the forthcoming release of the Surface Hub, Kerravala said. At the same time, Polycom also has been building out its cloud capabilities, and earlier this year came out from under the controversy surrounding ex-CEO Andrew Miller, he noted.

      Given the changes at both companies, it would be wise to let the roadmaps play out for a year and then see a merger of two more settled and stronger companies, the analyst said.

      He also noted that many vendors—not named Microsoft or Cisco—in the communications space also have undergone transitions: Nokia bought Alcatel-Lucent; Siemens Enterprise Communications became Unify, which was then bought by Atos; ShoreTel released its Connect common platform; Avaya has reordered its executive team and has become more of a services company; and Lifesize spun out of Logitech as an independent company.

      Without a clear No. 3 in the space, there is opportunity for Mitel, Polycom and others to establish themselves, Kerravala said. Adding the challenges of integrating two companies could put merged Mitel and Polycom at a disadvantage. There are too many vendors for the market to support, so there will be consolidation, the analyst said. For Mitel and Polycom, the companies may be better served to have such a merger happen later rather than sooner.

      Jeff Burt
      Jeffrey Burt has been with eWEEK since 2000, covering an array of areas that includes servers, networking, PCs, processors, converged infrastructure, unified communications and the Internet of things.

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