Mitel, Polycom Merger Talks 'Heating Up'; Shares Soar

Merger talks between unified communications vendors Mitel and Polycom are reportedly entering their final stages after months of discussions.

"We're hearing that all the small details and discussions are beginning to wrap up," said one executive from a solution provider that partners with Polycom, and who declined to be identified. "I think [channel partners] from both sides are ready for it or at least preparing for it … It's heating up, shouldn't be too long now before we know."

According to a Bloomberg report Wednesday, Mitel is in advanced talks with Polycom in a deal that would value Polycom at around $1.7 billion. Polycom declined to comment; Mitel did not respond to a request for comment by publication time.

[Related: Partners: Brocade's Acquisition Of Ruckus Wireless Creates More Formidable Foe To Cisco]

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Polycom's stock is soaring today, up more than 8 percent as of 12:30 p.m., nearly hitting a year high of $11.74 per share. Mitel shares are also rising, up more than 4.5 percent to $8.05.

Partners say the potential merger will have huge beneficial impacts on both vendors' channels through possible new joint technologies and innovation in the unified communications space.

The executive said that although the merger isn't 100 percent definite, the consolidation will allow for better competition against the larger vendors in the market, such as Avaya and Cisco.

"I wouldn't say this is necessary critically needed to stay alive, but it's probably the right time to do it given both companies' positions in the market," said the executive.

Ottawa, Canada-based Mitel has a market value of $930 million, while San Jose, Calif.-based Polycom's market cap is valued at $1.57 billion. According to recent earning reports from both firms, a combined company would have sales of more than $2.5 billion.

In October, Elliott Management -- which owns stakes in both Mitel and Polycom -- filed a statement with the U.S. Securities and Exchange Commission that said the market is ripe for consolidation and that it's encouraging Mitel and Polycom to combine their telecommunications and videoconferencing expertise.

Elliott owns a 6.6 percent stake in Polycom and a 9.6 stake in Mitel, with about $100 million invested in each company, according to the letter Elliott filed to Polycom's board of directors in October.

In the letter, Elliott said the merger was needed in part because of heavy competition from large vendors such as Avaya, Huawei and, specifically, Cisco.

Mitel CEO Richard McBee didn't shy away from embracing the idea of a potential merger in a recent interview with CRN.

"If a Polycom and a Mitel came together, the [Software-as-a-Service] business would be really large between the two companies," McBee said. "Everywhere we sell in enterprise telephony equipment, there's always video in those big accounts. Wherever we're selling video equipment, there's always telephony."