* New company will have Mitel name, retain Polycom brand
* Mitel CEO Richard McBee to lead combined co
* Deal at a premium of 9.5 pct to Polycom's Thursday close
* Activist investor Elliott says supports Mitel-Polycom
merger
(Adds background on tax inversions, CEO comment)
By Liana B. Baker and Rishika S
April 15 (Reuters) - Canada's Mitel Networks Corp MNW.TO
said on Friday it would buy U.S. voice and telephony gear maker
Polycom Inc PLCM.O for about $1.96 billion in cash and stock,
in a deal that had been championed by activist investor Elliott
Management.
The merger will reduce Polycom's tax bill since the combined
company will be domiciled in Canada, making it the first
so-called tax "inversion" deal since the U.S. Treasury
Department issued new rules earlier this month to curb such
transactions.
President Barack Obama's proposed rules discourage tax
"inversions", which are tax-driven deals in which a U.S. company
merges with a foreign business and adopts its tax domicile to
reduce the combined company's overall tax burden.
Upon closing, former shareholders of San Jose,
California-based Polycom are expected to own close to 60 percent
of the combined company, with Mitel shareholders owning the
remainder. The company will have its headquarters in Ottawa and
will operate under the Mitel name while retaining the Polycom
brand.
Mitel executives, who will run the company, brushed off
concerns the deal could be affected by the new inversion rules.
"This is strategic, first. This has nothing to do with an
inversion at all...we will always pay taxes right," said Mitel
chief executive Rich McBee, adding that while Mitel has a
smaller market capitalization than Polycom, it has 1,000 more
employees.
Polycom stockholders will get $3.12 in cash and 1.31 Mitel
shares for each of their shares, or $13.68 based on the closing
price of a Mitel common share on April 13.
Shares of Polycom closed 2 percent lower on Friday, while
Mitel's U.S.-listed shares closed down 10 percent.
Wells Fargo (NYSE:WFC) analyst Jess Lubert said that while Polycom
shareholders will be disappointed by the high stock component,
the deal is the right move for Polycom.
"Polycom's decision to be acquired by Mitel is a risk worth
taking, as we think the challenges of remaining a standalone
entity may be even greater for Polycom given the intensifying
competitive backdrop," Lubert said in a research note.
The deal, worth $13.44 per share as of Thursday, represents
a premium of 9.5 percent to Polycom's last close and is expected
to be accretive to Mitel's shareholders next year.
Hedge fund Elliott Management, which holds a 6.6 percent
stake in Polycom and a 9.7 percent stake in Mitel, has been
pushing the companies to merge since October, and voiced its
support on Friday.
Mitel made the initial approach to buy Polycom, Reuters
reported in March, citing sources familiar with the matter.
Mitel said it plans to finance the cash portion of the deal
with cash on hand and proceeds from new financing. The company
also said it has received about $1.1 billion of financing from
Bank of America Merrill Lynch (NYSE:BAC), its financial adviser. Polycom
was advised by Morgan Stanley (NYSE:MS) MS.N .