Mitel to buy Aastra in $400M deal to create bigger Canadian high-tech player

OTTAWA -- Mitel Networks Corp. (TSX:MNW) has a friendly deal to acquire Aastra Technologies Ltd. (TSX:AAH) for about C$400 million in stock and cash, a move that's calculated to create a stronger Canadian competitor in the global market for business communications systems.

If approved, the deal will result in Aastra shareholders owning about 43 per cent of an enlarged Mitel, to be headquartered in Ottawa, with about US$1.1 billion of total revenue.

"Once you reach the billion-dollar club, you're a real player and you're there to stay," said Mitel chief executive Richard McBee in an interview Monday.

The merger will move Mitel to the No. 5 spot worldwide in terms of market share, although it will still be small compared with global market leader Cisco Systems Inc. and some of the regional players.

But McBee said Mitel will become No. 1 in Western Europe after acquiring Aastra and a stronger No. 3 in North America, where Cisco and Avaya Inc. have their strongholds.

Mitel is already the leader in the U.K. market and Aastra is strong in Germany, France and elsewhere in Western Europe, where Cisco and Avaya also have a presence.

"So we think that on a country-by-country perspective, we can fight very well against the heavyweights," McBee said.

The two companies are also aiming to reduce combined operating costs by US$45 million over two years. It said they could consolidate facilities, optimizing supply chains and benefit from economies of scale.

However, the initial savings may come from reducing overlap in research and development efforts while still spending about $100 million.

Mitel has its major R&D centre in Ottawa, one of Canada's leading technology development centres, while Aastra's research centres are in France, Germany and Switzerland.

"We'll maintain those R&D centres but we'll focus each one of them on (areas of) excellence. We'll do that in the integration process," McBee said.

He said there's very little overlap in terms of products or sales organization but acknowledged some cuts will occur at the corporate level, particularly in the Toronto area where both have offices.

"What we'll have to do is, site by site, determine which is the best office and which is going to be there as we go forward," McBee said.

But the big savings will come from getting better prices from suppliers because of Mitel's larger buying power, McBee said.

He said senior management at both companies feel very comfortable that the deal will be good for their shareholders and positions but added that it's impossible to know whether Mitel's bid will attract a rival offer.

Under the deal, Aastra shareholders will receive US$6.52 per share cash plus 3.6 Mitel common shares. That initially gave the deal a value of about C$31.96 per Aastra share.

In U.S. currency, the stock portion of the Mitel offer was initially worth US$23.94 based on the Friday closing price of US$6.65 at Nasdaq, making its offer worth about US$30.46 when announced.

Mitel shares initially rose but were down eight cents at $7 on the Toronto Stock Exchange at midmorning. Aastra shares were up $3.37 or 12 per cent at C$31.60, but were off their highs for the day.