Elliott Management encouraged the board of directors of Polycom to consider a merger with Mitel Networks after acquiring active stakes in both companies.
Polycom is a voice, video and content-sharing solutions provider. Mitel Networks is a business communications and collaboration software, services and solutions provider.
The stock price of Polycom and Mitel Networks increased more than 16% to $13.33 per share and $8.16 per share, respectively, around 1:08 in the afternoon in New York today.
JPMorgan’s Erdoes From Delivering Alpha: How The Pandemic Is Triggering Deglobalization
Elliott’s equity interests in Polycom, Mitel Networks
The hedge funds managed by Elliott Management— Elliott Associates and Elliott International (together called “Elliott”), collectively own 8,850,892 shares or 6.6% of all the outstanding common stock of Polycom.
Elliott owns 11,548,871 shares or 9.6% of all the outstanding common stock of Mitel Networks.
Elliott’s senior portfolio manager said the firm’s equity investment in both Polycom and Mitel Networks were almost the same in value at approximately $100 million each. It is one of the largest shareholders of both companies. He also mentioned that the firm also owns stock in ShoreTel and the investments are related.
Elliott believes the UCC urgently needs consolidation
In his letter to the board of Polycom, Mr. Cohn on behalf of Elliott urged the company to perform an immediate strategic review citing the reason that the subscale unified communications and collaboration (UCC) vendors are facing significant challenges.
The investment management firm suggested that Polycom’s strategic review should include a potential going private transaction, but it should focus on a merger transaction with other companies such as Mitel Networks.
Mr. Cohn noted that Polycom, Mitel and other UCC vendors are struggling to maintain market share, and will “continue to face a very difficult market. According to him, the situation led Polycom to underperform all relevant metrics significantly over all relevant periods.
According to him, Polycom’s track record of underperformance and risks will only continue if it would maintain a status quo strategy. Mr. Cohn noted that the cost cutting, stock buy back, and management changes implemented by the company over the past two years did not generate value for shareholders.
“Elliott strongly believes a combination of mid-tier UCC vendors will create greater scale, significant synergies and meaningful valuation uplift for stockholders. Elliott would be willing to provide financing for Polycom’s acquisition of targets in the space, something we have successfully done before,” according to Mr. Cohn.
Elliott believes Polycom can become an accretive M&A machine
Mr. Cohn emphasized their belief that Polycom is an excellent platform vehicle to lift the UCC sector. A merger strategy could boost the company’s stock by 80%.
According to him, Polycom can become an accretive M&A machine with significant cash flow, net cash and a capable management team and Board.
He informed Polycom’s Board that Elliott conveyed the same thoughts to Mitel Networks. The investment management firm believes that Mitel Networks is an attractive merger candidate for Polycom because it has a very capable team led by CEO Rich McBee and CFO Steve Spooner.