Mitel is a buy with or without ShoreTel, says Cormark

Mitel’s (Mitel Stock Quote, Chart, News: TSX:MNW, Nasdaq:MITL) efforts to acquire ShoreTel (ShoreTel Stock Quote, Chart, News: Nasdaq:SHOR) are ongoing, but a successful outcome in the Ottawa company’s bid to acquire its American rival isn’t required to achieve its growth objectives, says Cormark analyst Richard Tse.

On October 20th, Mitel announced it has made a proposal to the board of ShoreTel to acquire all its outstanding shares for $8.10 per share in cash, or about $540-million. The offer was a 24% premium to ShoreTel’s closing stock price on October 17th. The company was previously rebuffed in a letter it sent to ShoreTel’s board on October 2nd.

Tomorrow, before market, Mitel will report its Q3, 2014 results. Tse is expecting the company will generate EBITDA of $31-million on revenue of $274-million. The analyst says he expects that “a material lift” in synergies from the company’s acquisition of Aastra Technologies, which was completed a year ago next week, is still to come. For this reason, he says he will be watching the company’s guidance closely.

“That said,” adds Tse, “we think Mitel’s bid for ShoreTel reflects on their Aastra integration while signalling their intentions to grow by consolidating the sector and with up to 5 other candidates in their pipeline, we don’t think a successful ShoreTel acquisition is required to achieve its growth objectives.”

Tse says he sees a “meaningfully accretive” acquisition in the next 12 to 24 months for Mitel.

In a research update to clients yesterday, Tse maintained his “Top Pick” rating and $16.00 one-year target on Mitel. At press time, shares of the company on the Nasdaq were up 1.3% to $9.21.

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