ShoreTel to Review Options for Its Future, Including a Possible Sale

The UC vendor, which is shifting its efforts to the cloud is forming a committee that will take a look at all options, from a sale to partnerships.

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ShoreTel officials are forming a committee to explore various options for the business communications company, which could include everything from selling all or parts of the company to joint ventures and partnerships.

The company's board of directors has formed a strategic advisory committee that will advise the full board on the various options while ShoreTel has retained J.P. Morgan Securities as its financial advisor in the effort and Fenwick and West as its legal counsel.

The review comes at a time when the company is pushing ahead with its efforts to become a larger provider of cloud-based unified communications (UC) offerings and the crowded global market is continuing to see a trend toward greater consolidation among vendors. On a conference call Aug. 4 to talk about the company's latest quarterly financial numbers, President and CEO Don Joos told analysts and journalists that ShoreTel is seeing rapid adoption of its cloud-based options and growing migration of its on-premises customers to the cloud, all of which is helping the company move from product revenue to hosted revenue.

In addition, the trend in the business world toward moving to the cloud is opening up a vast array of opportunities to the company, Joos said. However, "despite the momentum we've built, the stock price is under pressure," he said. In addition, he said the market—which is led by Cisco Systems and Microsoft and includes a broad array of other players—continues to consolidate, most recently with the announced $2 billion acquisition of Polycom by private equity firm Siris Capital, which had outbid rival communications technology vendor Mitel.

Given such trends in the industry, taking a look at the future makes sense, Joos said, adding that the company is "operating from a position of strength."

"As global demand for cloud communications increases and the world shifts towards cloud services, we are seeing more and larger opportunities," he said in a statement. "To continue to ensure we are well-positioned to maximize the opportunity ahead of us, we believe this is the right time to review the options for the next phase of the company's growth."

Company officials cautioned that there's no guarantee that the review will result in a sale or any other specific strategic direction. There was no indication regarding a timetable for the review.

For the latest financial quarter, ShoreTel generated $94.6 million in revenue, a slight uptick from the $94.2 million in the same period in 2015. In addition, the company lost $700,000 during the three months, compared with a gain of $4.7 million a year ago.

However, Joos and other officials spoke about the momentum behind the company's shift from on-premises bookings to the cloud. Since rolling out its Connect offerings—a single common platform that can be used for on-premises, cloud and hybrid deployments—last year, the company has gained 5,500 cloud customers, the bulk of which were new customers won from competitors. The company now has about 231,000 customer seats, a 29 percent increase from the same period last year.

But the company in April unveiled an on-premises-to-migration program for existing customers, and in the latest quarter, 11 percent of cloud bookings were from on-premises customers making the move to the cloud. In addition, the shift can be seen in the revenue breakdown. The company generated $34 million in the quarter, a 20 percent year-over-year increase, while product revenue of $41.7 million represented a 12 percent decline. The same trends can be seen for the full fiscal year 2016, and Joos said that by the December quarter, hosted revenue should overtake sales from on-premises products.

In the current quarter, ShoreTel executives expect revenue in the range of $86 million to $92 million.

The shift by enterprises toward cloud communications is driving rapid changes in the market as vendors work to rapidly build out their hybrid cloud capabilities. Among the most recent changes in the competitive space include Nokia buying Alcatel-Lucent, Siemens Enterprise Communications becoming Unify and then being bought by Atos, Avaya restructuring its leadership team and growing its services capabilities, and Lifesize moving aggressively to the cloud and spinning out of Logitech as an independent company.

Mitel has been particularly aggressive, buying Aastra Technologies and Mavenir Systems to help grow its capabilities in cloud and mobile communications. However, Mitel was unsuccessful in buying ShoreTel in 2014 for $574 million when Shoretel officials and directors dismissed the offer as undervaluing the company, and has reached an agreement earlier this year to buy Polycom until Siris came in with a superior offer and Mitel withdrew its bid.