Mitel shareholders approve $2B acquisition of Ottawa firm

Mitel shareholders voted overwhelmingly in favour of Searchlight Capital Partners’ proposed acquisition of the Kanata-based firm on Tuesday, marking a key approval in the $2-billion deal that’s been months in the making.

Nearly 98 per cent of shareholders in the 45-year-old communications firm voted in favour of the deal that was backed unanimously by Mitel’s board of directors, including co-founder Terry Matthews. When closed, shareholders will receive $11.15 per common share in cash. (All figures in USD.)

The acquisition, which will see Mitel go from a publicly traded company to a private firm, now awaits regulatory and Canadian court approval and is expected to close later this year.

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In addition to approving the Searchlight Capital deal, Mitel shareholders weighed in on the compensation packages that would be awarded to several key executives in the event they are terminated after the acquisition.

For example, CEO Rich McBee and chief financial officer Steve Spooner would receive a proposed $16.5 million and $6 million, respectively, if they are let go within a year of the deal closing.

Shareholders voted 56 per cent against a motion approving the so-called “golden parachute compensation.” The results of the vote, while seemingly critical, are considered advisory and non-binding.

The board’s convincing arguments

In a series of documents filed ahead of the shareholder vote, Mitel’s management explained the process that brought the Kanata tech giant to the point of acquisition.

Much of the concern revolves around executing the firm’s strategy while operating as a publicly traded company, which must balance shareholder value quarter-to-quarter with long-term performance.

“Do I invest in the long term … or do I make sure that I optimize for that 90-day report card?” McBee said in an interview with OBJ when the acquisition was first announced in April.

While exploring the potential acquisition with California-based Searchlight Capital, Mitel prepared performance expectations for the coming years. The firm indicated in documents that it expected annual revenue growth of approximately one per cent each year, reaching $1.4 billion by 2022.

The chief concern for Mitel’s board of directors, as laid out in documents to shareholders, appeared to be in the slow conversion of existing on-premise customers to the firm’s cloud communications solutions.

On-premise revenues were down eight per cent year-over-year in the first quarter of 2018, a steeper decline than management anticipated. Meanwhile, new cloud recurring bookings saw a double digit decline in the first quarter, both year-over-year and quarter-to-quarter.

One of the reasons the conversions aren’t clicking as quickly these days is that many of Mitel’s sales have been achieved by channel partners, limiting the amount of direct customer contact the firm can draw upon.

Documents show the board even briefly considered splitting the company into two – an on-premise communications firm and a cloud-focused one – but the division was determined too costly and time-consuming to be an effective solution.

The weakness in Mitel’s cloud business has been exacerbated by competition in the increasingly-consolidated communications market. Large enterprise telephone vendors and new cloud-first players are both making more significant gains in the space, the board indicated.

These reasons, combined with a slower-than-expected integration of ShoreTel’s operations with Mitel after last year’s acquisition, led the board to the conclusion that Mitel would perform better as a privately-held firm.