Mitel finally secures Inter-Tel

Mitel Networks had to conquer a stubborn founder and a shareholder, but it has finally won control of IP-PBX competitor Inter-Tel Inc.

The final move came earlier this month when a Delaware court dismissed a shareholder application for a preliminary injunction to stop the US$723-million takeover, which was expected to be finalized Aug. 16.

At the beginning of the month, following a delay prompted by Inter-Tel founder and board member Steven Mihaylo, shareholders voted 60 per cent in favour of the deal. Mihaylo withdrew a proposed recapitalization plan just days before the tally.

“This acquisition gives us scale, gives us a broader customer community, gives us access to more applications and other platform directions,” said Mitel CEO Don Smith in an interview after the vote. The expanded Mitel will have approximately 3,400 employees in the Americas, Europe, Middle East and Africa and Asia.

Mitel makes IP-based PBX and phone systems for organizations ranging from small to enterprise. Inter-Tel is largely known for its endpoints and unified communications software for small and mid-sized businesses, but it also has a larger managed services offering than Mitel’s.

Together, Smith said, they will make a company with about $850 million in annual revenue.

One priority of the melded companies will be a product migration path to assure customers and channel partners they won’t be stranded with out-of-date products.

“It’s not so much about new products,” Smith said of the merger potential. “It’s about acceleration as you combine the R and D of the solutions, it’s about more unified communications, more capability in the presence world, more collaboration.”

Mihaylo, who owns 19 per cent of Intel-Tel, was fiercely opposed to Mitel’s bid of US$25.60 a share, proposed buying back the company for US$28 a share by using company cash and loans. Mitel refused to budget on its offer. Mihaylo was, however, able to stall the shareholder vote, which had been scheduled for June 29.

Then in July Inter-Tel forecast that sales this year will be below earlier projections, after which two independent proxy advisory services switched their advice and advised customers to vote for the merger.

The release of those figures appeared to have tipped the balance in favour of Mitel.

Company CEO Norman Stout said his firm did not meet the second quarter net sales used in the projections the company made its May proxy statement backing the Mitel merger, and that he expected sales to be well below projected net sales for 2007.

That made Inter-Tel’s future if it rejected the Mitel deal look shaky. Inter-Tel quoted one proxy advisory firm that changed its mind on the deal as saying the new figures were one of the reasons it changed its mind.

In turn, a bitter Mihaylo was prompted to write shareholders on July 27 that he was “extremely confused and troubled” by the figures.

“I am amazed that less than two months ago the company published projections which indicated that its strategy would yield far more positive results,” he wrote.

“I feel whip-lashed and deceived.”

With no other choice but to use management’s figures, he withdrew his proposal to recapitalize the company, believing Inter-Tel could go it alone.

However, he still urged shareholders to reject the Mitel bid.

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Howard Solomon
Howard Solomon
Currently a freelance writer, I'm the former editor of and Computing Canada. An IT journalist since 1997, I've written for several of ITWC's sister publications including and Computer Dealer News. Before that I was a staff reporter at the Calgary Herald and the Brampton (Ont.) Daily Times. I can be reached at hsolomon [@]

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