Polycom acquisition by Mitel is anticipated to avoid Mitel becoming a U.S. corporation

The acquisition of Polycom, a NASDAQ-listed U.S. corporation by Mitel in a Delaware merger (in which an indirect Delaware sub of Mitel (“Merger Sub”) is merged into Polycom, with Polycom as the survivor) is being structured so that it will be treated for accounting purposes as a purchase by Mitel and as not causing Mitel to be deemed to be a U.S. corporation under Code s. 7874 – even though the market cap of Polycom is almost 50% greater than that of Mitel. This is being accomplished by a portion of the cash consideration for the public’s shares of Polycom being paid in cash (with much of the cash coming from Polycom itself.)

Mitel and Polycom intend to treat the merger as divided for Code purposes into two transactions: (1) the redemption of a portion of the shares of Polycom stock held by each Polycom stockholder for the portion of the cash consideration that is funded by Polycom (including any borrowing by Merger Sub and Polycom and any cash distributions from subsidiaries of Polycom (collectively, the "redemption cash")), and (2) the exchange of a portion of the shares of Polycom stock held by each Polycom stockholder for Mitel common shares and the cash which is funded by Mitel (the "merger cash.") The shares of Polycom stock held by each Polycom stockholder will be divided between these transactions based on the relative fair market values of the merger consideration exchanged for such shares.

The payment of the redemption cash will be treated as a distribution in redemption of shares of Polycom stock. The receipt of the merger cash (but not the Mitel common shares) by U.S. Holders is expected to be subject to Code s. 304 so that the Polycom stockholders will be treated as if they received additional Mitel common shares in the merger equal in value to the merger cash, and then Mitel redeemed such shares for such merger cash.

Presumably for Canadian basis reasons, the merger agreement provides for the issuance, on the merger, of shares by Polycom to Mitel (or Merger Sub’s immediate Delaware parent) in consideration for Mitel's payment of the aggregate consideration to the Polycom shareholders.

Neal Armstrong. Summary of Polycom Proxy Statement under Mergers & Acquisitions – Cross-Border Acquisitions – Outbound – Delaware Mergers.