Following Aastra acquisition, Cormark raises target on Mitel to $9.00

Mitel CEO McBee: “The business communications market is ripe for consolidation and on the cusp of a mass migration to cloud-based services.”Mitel’s (TSX:MNW) acquisition of Aastra makes a lot of sense and is a good deal for shareholders of both companies, says Cormark analyst Richard Tse.

This morning, Mitel and Aastra announced they had entered into a definitive arrangement agreed upon unanimously by both boards, under which Mitel will acquire all of the outstanding Aastra common shares for (U.S.) $6.52 in cash plus 3.6 Mitel common shares for each Aastra common share. The deal values Aastra at $392-million.

Mitel CEO Rich McBee explained the company’s reasoning for the acquisition.

“The business communications market is ripe for consolidation and on the cusp of a mass migration to cloud-based services. We believe that small competitors with narrow focus and limited global reach will quickly be marginalized,” he said. “Aastra’s solid financial structure, complementary portfolios, geographic reach, and large installed base immediately augment and expand Mitel’s market footprint, enabling us to capitalize on a unique opportunity to leapfrog the competition and lead the market.”

Tse believes that the combined entity of Mitel and Aastra, which will boast sales of $1.1-billion, will have potential synergies from a product and operations standpoint, supply chain optimization and facility consolidation. He notes that from a geographic perspective the companies have very little overlap, with Mitel being strong in the United States and the United Kingdom, and Aastra being stronger in continental Europe.

In a research update to clients this morning, Tse reiterated his BUY recommendation on Mitel, but raised his one-year target to $9.00, up from his previous target of $7.00.

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