Inter-Tel: Founder's proposal not superior to Mitel's offer

By Lisa Kerner

Charlotte, N.C., June 12 - Inter-Tel (Delaware), Inc.'s special committee determined that company founder Steven G. Mihaylo's recapitalization proposal is not reasonably likely to lead to a transaction more favorable than the one offered by Mitel Networks Corp.

In a letter to Inter-Tel stockholders, board chairman Alexander Cappello said that Mihaylo's recapitalization proposal "contemplates the acquisition of only a portion of each Inter-Tel stockholder's shares for cash, while a significant percentage would not be purchased" resulting in less overall value for the stockholders than the Mitel transaction.

Mihaylo recommends the company use $200 million from its cash reserves, borrow an additional $200 million and begin a tender offer to purchase, after expenses and break-up fees, some 13.4 million Inter-Tel shares at $28.00 per share, a prior news release stated.

Under the April 26 agreement with Mitel, Inter-Tel stockholders would receive $25.60 per share in cash in a deal valued at $723 million. In addition, the Mitel merger is more certain and has "a shorter path to payment," the letter to shareholders stated. A combination of equity, led by Francisco Partners, and debt funding via Morgan Stanley will finance the deal.

The Hart-Scott-Rodino antitrust waiting period in the proposed Mitel merger has expired, Inter-Tel announced on Tuesday. As a result, Inter-Tel and Mitel expect the merger to close in early July following a vote by Inter-Tel stockholders on June 29.

The Mitel merger would cash out 100% of Inter-Tel's outstanding shares. Mihaylo's proposed recapitalization could require stockholders to retain 40% or more of their shares and remain subject to market risk.

Cappello said terminating the Mitel merger agreement would also be costly, triggering a $20 million termination fee to Mitel.

In making its decision, the committee called in to question the "sincerity and credibility" of Mihaylo's recapitalization proposal, noting that he attempted to buy Inter-Tel less than one year ago for a best and final offer of $23.25 per share in cash. Mihaylo also waged a proxy contest to pass a "sell the company" resolution in which he vowed to support a sale to the highest bidder, Cappello said in his letter.

Shareholders were also advised that "if Inter-Tel's stock price significantly declines after the potential recapitalization, Mihaylo's increased ownership position would give him a potential veto right on any future sale of the company to another buyer, regardless of the terms."

Mitel, based in Ottawa, Ont., provides unified communications solutions and services for business customers.

Tempe, Ariz.-based Inter-Tel specializes in applications using networks and server-based communications software.

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