What:Shares of Polycom were up 16% at 12:30 p.m. Thursday after hedge fund Elliott Management disclosed active stakes in both Polycom and Mitel Networks , then urged the two companies to merge to boost profitability. Shares of Mitel were up 17.2% at 12:30 p.m. on the news.
So what: Specifically, Elliott sent a letter to Polycom's board of directors noting it now holds a roughly $100 million equity stake in each company which, in Polycom's case, amounts to roughly 6.6% of all outstanding common shares. Elliott also owns a related investment in ShoreTel.
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More pertinent to the pop, Elliott believes Polycom's past strategy of cutting costs, buying back shares, and changing management have been ineffective in creating shareholder value, and "must initiate a comprehensive review of all strategic options..." Elliott further suggests "a combination of mid-tier [Unified Communications and Collaboration] vendors will create greater scale, significant synergies, and a meaningful valuation uplift for stockholders."
Elliott also promised it "would be willing to provide financing for Polycom's acquisition of targets in the space, something we have successfully done before."
Now what: Based on Elliott'scalculations, a Polycom-Mitel merger could drive more than 80% upside to Polycom's stock price by the end of 2017.
Of course, such a merger is hardly guaranteed, and Polycom management hasn't issued a formal response yet. But it's also worth noting prior to today's pop, shares of Polycom had fallen 15% year to date on the heels of itsmixed quarterly results in July. Indeed, the company has struggled to find growth amid increasing competition, and we'll see whether Polycom has made any progress on that front when it reports third-quarter results later this month.
In the end, though,shareholders would likely welcome any catalyst that helps Polycom improve its market position and profitability as larger rivals ramp their own videoconferencing platforms. Perhaps a merger with Mitel would prove to do just that.
The article Why Polycom Inc. Stock Popped Today originally appeared on Fool.com.
Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Polycom. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.