Mitel Networks to Purchase Polycom for Approximately $2 Billion

Mitel Networks Corp. agreed to buy Polycom Inc. for close to $2 billion cash-and-stock deal pursued by Elliott Management Corp. to push consolidation in the telecom-equipment industry.

Mitel is global provider of enterprise and mobile communications powering more than 2 billion business connections and 2 billion mobile subscribers daily. The new company will be located in Mitel’s home of Ottawa, Canada, and have roughly 7,700 employees globally. The deal will give Mitel a combined portfolio of over 2,100 patents and more than 500 patents pending, according to the company.

Mitel, co-founded in the 1970s by Chairman Terry Matthews, was one of the original companies that kicked off the growth of Canada's technology industry.

Mitel said that its negotiations with Polycom went close to 10 months.

Through other acquisitions, Mitel has attempted to take advantage of those changing market dynamics. Mitel's position is that combining its communications acumen with Polycom’s portfolio in the conference and video collaboration market will make it a top player in the industry.

"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," said Mitel CEO Rich McBee (pictured above), in a statement.

Activist investor Elliott Management Corp. mentioned on Oct. 8 it had taken stakes of about $100 million in both San Jose, Calif.-based Polycom and Mitel and pushed them to combine.

Elliott said the companies face fierce competition from bigger 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 merger will decrease Polycom's tax bill since the combined company will be located in Canada, making it the first so-called tax "inversion" deal since the U.S. Treasury Department issued new rules earlier this month to curb such transactions.

The combined company will have a combined tax rate of almost 20 percent, Chief Financial Officer Steven Spooner said. 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 announced last week by the Treasury Department that aim to limit them. Mitel has thoroughly studied the new rules, Spooner said.