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In the cloud: Mitel, Aastra form outsourcing giant

Mitel said Monday it will acquire Aastra for $400-million in stocks and cash.

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Betting that businesses are more interested in renting than buying software and online storage space, two of Canada's biggest cloud computing companies are joining forces to create a home-grown competitor to companies such as Oracle and Google.

In a friendly deal, Ottawa-based Mitel Networks Corp. will buy Aastra Technologies Ltd., a Concord, Ont.-based communications provider, for $392-million. The transaction comes to $6.52 in cash and 3.6 Mitel shares for every Aastra share – roughly $31.96 an Aastra share, a 13-per-cent premium over the company's share price at the end of last week. The company's stock rose 4 per cent on the Nasdaq Stock Market on Monday.

Mitel's acquisition creates a new cloud computing firm with revenue exceeding $1-billion, which aims to capitalize on the growing number of businesses interested in outsourcing their technology needs. According to Awesome Cloud, a Florida IT services provider, cloud computing revenues are expected to grow to $150-billion (U.S.) next year, from with $46-billion in 2008.

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"This merger will fundamentally change the landscape of our industry," Mitel chief executive officer Richard McBee said.

"With this merger, we're creating a company with over a billion dollars in revenue, a truly global footprint, over 60 million end users, recognized No. 1 market share in Western Europe, and a combined cloud business of $100-million," he said.

Canadian firms are moving to tap the growing market. Last week, Waterloo, Ont.-based technology giant OpenText Corp. said it would pay $1.17-billion to buy GSX Group Inc., a Maryland-based cloud-based services provider.

In addition to server space, Mitel sells phones as well as call centre, voice-mail and call forwarding software to businesses ranging from small entrepreneurial outfits to large banks and brokerages. Many of the company's services are offered on monthly plans, similar to phone company plans. Users pay more or less as they add or remove services.

Moody's analyst Peter Adu said the credit rating agency anticipates that the merger could provide Mitel with "a leading market share in Western Europe and enhance its market share in North America.

"The merged company will also provide complementary products with minimal overlap, and could boost revenue from the cloud business due to a large global installed base of customers that could migrate to cloud services," he added.

Moody's put Mitel on review for a possible upgrade following news of today's deal.

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Cloud computing refers to software and hardware that a customer rents, rather than buys. A medium-sized business may opt to store its information on a server run by a computing giant such as Amazon or Google, rather than spend a large sum of money on buying servers. The same is true of software, as more and more businesses opt to rent programs such as Microsoft Office rather than buy and then continually upgrade. The one unifying trait of all cloud services is that they are accessible remotely, usually from any device with an Internet connection, and allow companies to avoid large up-front costs.

However, some corporate clients worry about the security of storing sensitive data off-site. Such concerns surfaced with the introduction of the Patriot Act in the United States, which allows government monitoring of information stored on servers in that country, and more recently with revelations of extensive digital spying by American intelligence agencies.

There's still plenty of opportunity in the cloud computing sector within Canada for companies such as Mitel, in large part because there exist very few ways for Canadian customers to buy cloud services quickly and on large servers that reside in the country, Robert Hart, CEO of the Canadian Cloud Council, said in an interview.

"In Canada, we don't have a similar platform, we don't have cloud infrastructure that you can buy and turn on in five minutes," he said. "I would suspect that companies like Mitel and the large telcos are looking at building that right now."

George Watt, vice-president of corporate strategy at independent software giant CA Technologies, said that Canada's cold climate allows for ambient cooling of data server warehouses, where massive computers tend to generate lots of heat. Canada's vast geographical space and multiple time zones also make it a prime location for building server farms and offering customer support to clients around the world, he added.

"Canada is uniquely positioned to become world leader in cloud [computing]," Mr. Watt said. "The opportunity is here."

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