Deals

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

The battle for teleconferencing-services provider Polycom is heating up, but shareholders should keep their cool. 

Polycom on Wednesday received an all-cash offer from a private equity firm (which Bloomberg News has identified as Siris Capital) valuing it at $12.25 a share. While the San Jose-based company's board considers how to respond, it continues to recommend a merger with Mitel Networks -- a logical deal that was prompted by activist investor Elliott Management. (Elliott hasn't weighed in on the latest offer either, but as a holder of both Polycom and Mitel shares and a believer in industry consolidation, it would presumably still back the Mitel proposal). 

How does Mitel's offer stack up against this new one? When it was announced in April, Mitel's proposal valued Polycom at $13.68 a share. But since then, Mitel's shares have fallen and its offer is now worth $11.91 -- less than the Siris bid and even below where Polycom is currently trading.

Mind the Gap
Mitel's shares have underperformed since the deal with Polycom was announced, decreasing the value of its cash-and-stock offer
Source: Bloomberg

One way Mitel could bolster its own share price -- and the value of its offer -- would be to revise its targeted synergies from the deal, which are currently at $160 million. Mitel CFO Stephen Spooner said at a conference last month that the company has a track record of overachieving its synergies, and although cautious when making initial estimates, it "[hopes] to be able to confirm additional upsize." Such an upsize , sooner rather than later, could garner more long-term shareholder support for the combination and lift the value of Mitel's offer above Siris Capital's without it having to cough up more cash.   

But even without a revision to synergies, Polycom shareholders have more to gain by choosing a Mitel offer over a sale to Siris. Under Mitel's proposal, they're set to own around 60 percent of a combined company that will have a broader portfolio of products and services, a stronger competitive position and the potential for future stock buybacks as well as M&A. That should lead to share price gains over time. 

The Scale Tale
A deal between Mitel and Polycom would give the combined company pro forma 2015 revenue of almost $2.5 billion.
Source: Bloomberg

In other words, sacrificing short-term profits may sting now for Polycom holders, but taking the long view with Mitel should lead to a better payoff down the road.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Merger arbitrageurs have been shorting Mitel's stock in order to capture the deal spread.  Also, the stock has been under pressure as shareholders prepare for Mitel to issue nearly 178 million new shares to fund the Polycom deal.

  2. A recent example of this occurred late last year when Meredith Corp. lifted the estimated synergies from a Meredith–Media General combination to "at least $85 million" from "more than $80 million" when the merger agreement was announced (but Media General ended up in the hands of Nexstar).

  3. The company will likely try to avoid this, considering it has secured $1.085 billion in committed financing from Bank of America and adjustments to this figure could be tough to obtain. In Mitel's words, the current debt market is "uncertain and volatile." 

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net