Mitel Jumps as Polycom Battle Could Lead to Shareholder Rewards

  • Competing bid for Polycom may lead Mitel to up cash offer: RBC
  • Mitel gains as much as 10 percent in Toronto trading

Mitel Networks Corp. jumped the most since January as an escalating bidding war for Polycom Inc. could either lead to a $60 million breakup fee or prompt the communications technology company to make its offer more shareholder-friendly.

Mitel agreed last month to acquire Polycom, a San Jose, California-based competitor. Mitel, based in Ottawa, gained 9.3 percent to $8.74 at 3:10 p.m. in Toronto after Polycom said yesterday in a filing it got a revised offer from a private equity investor that could be superior to Mitel’s. The private equity firm, which Polycom identifies only as “Sponsor 1,” is Siris Capital Group, according to people with knowledge of the matter, Bloomberg reported on May 13.

Mitel earlier rose as much as 10 percent, the most since Jan. 22.

If Mitel revises its deal, it’s likely to use debt to increase the amount of cash it’s willing to give Polycom shareholders, rather than paying largely in Mitel shares, as its current offer stipulates, Paul Treiber, an analyst at RBC Capital Markets, said in a note to clients. Though it would increase Mitel’s debt leverage, it could make the combined company’s earnings per share higher than it would be under Mitel’s existing offer, Treiber said.

Mitel also stands to gain $60 million in breakup fees if the deal with Polycom falls apart.

Mitel fell 21 percent from the day before the original deal until the end of trading on Monday after reporting first-quarter earnings that missed analysts’ estimates. The drop in its stock price made its original offer worth less, because it included both cash and stock, Treiber said.

A spokeswoman for Mitel declined to comment beyond a statement on Monday that said it believed its offer provided “superior and greater upside to both Polycom and Mitel.”

A spokesman for Polycom declined to comment beyond the company’s statement.

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