Inter-Tel confirmed yesterday that private buyout firm Vector Capital Corporation has decided not to make any acquisition offer for the company. Inter-Tel said that Vector Capital’s decision is based on a recent announcement made by its founder and former chief executive Steven Mihaylo regarding his recapitalization plan for the company.
In mid-May, Vector Capital had put forward an acquisition offer of $26.50 per share in cash for Inter-Tel. The company also confirmed the receipt of a letter from Mihaylo, proposing the recapitalization plan.
Inter-Tel on April 26th entered into a deal to be acquired by privately held Mitel for $25.60 per share in cash or about $723 million. The acquisition of Inter-Tel is expected to double Mitel’s revenues to over $800 million. The combined company is also expected to have market coverage in over 90 countries, with a leading position in the US and UK SMB IP communications industry, the fastest growing sector of the IP communications market.
Inter-Tel said that the Special Committee of its Board of Directors will consider Mihaylo’s recapitalization proposal in accordance with their fiduciary duties and the provisions of the Mitel merger agreement. However, there can be no assurance that Mihaylo’s proposal would result in a recapitalization or any other transaction. As per the company, the recapitalization plan is subject to confirmatory due diligence, financing, and other conditions.
Meanwhile, Mihaylo, the largest shareholder of Inter-Tel with about 19% of its outstanding shares, on Monday urged the company’s other shareholders to reject Mitel’s offer. Last year, Mihaylo and his firm Vector Capital had to drop their acquisition attempts for Inter-Tel as the company’s shareholders rejected the offer. Mihaylo resigned as Inter-Tel’s chief executive officer in February 2006.
For those that want to know, a recapitalization is defined as a change in a company’s capital structure, such as an exchange of bonds for stock. Recapitalization is often undertaken with the aim of making the company’s capital structure more stable, and sometimes to boost the company’s stock price (for example, by issuing bonds and buying stock).
Companies that do not want to become hostile takeover targets might undergo a recapitalization by taking on a very large amount of debt, and issuing substantial dividends to their shareholders (this makes the stock riskier, but the high dividends may still make them attractive to shareholders).