A merger between March Networks and Mitel Networks has been scuttled due to failure to secure legal approval, but the companies will form an alliance as if the merger had gone through.

An official announcement of the companies’ joint intentions will come in a few weeks, according to Mitel Networks’ spokesperson Kris Sherry.

“We’ve disclosed publicly that the plans for the merger are cancelled, however, the two companies will continue to operate very closely,” said Sherry.

March Networks and Mitel Networks, both located in Ottawa, are owned by Terry Matthews. Matthews announced in April that he planned to merge the two companies to deliver converged voice, video and data solutions over voice-over IP (VOIP). Mitel CEO Don Smith echoed those remarks a month later when Mitel outsourced its manufacturing, repair and distributions operations to a new company called BreconRidge Manufacturing Solutions Corp., in which Matthews also holds an ownership stake.

Sherry said that Smith and Mitel will pursue the forthcoming partnership with March as if it were 95 per cent of a merger. According to March Networks spokesperson Sarah Dehler, “We don’t foresee that there will be a dramatic change in the direction of the business . . . it’s just really how it gets executed.”

The fact that Matthews owns both companies should expedite the partnership, said Yankee Group of Canada analyst Mark Quigley. “Presumably they’ll be able to accomplish nearly as much via partnership as they would as a combined entity,” he said. “At the end of it, I’m not sure it makes a whole pile of difference.”

Mitel has a solid base in small and medium-sized enterprises, said Iain Grant, managing director of the SeaBoard Group, and the association of Mitel with March “is something that Nortel and Lucent should take notice of. . . . Both companies need each other to realize the dream.”

But even combined the companies will have a tough road ahead, said Quigley. In these days of belt-tightening economics, March/Mitel will have to provide a compelling offering to potential customers. As the IT industry shores up its spending, “the exploration of new solutions . . . becomes significantly less likely. . . . The whole idea of converging networks together like that, that has been bandied about for a while (but) we haven’t seen it penetrate terribly deeply across the enterprise.”

March itself was a victim of harsh economic realities last week and laid off 15 per cent, or 47, of its employees. Cuts were made across the board, mostly in the company’s Ottawa headquarters, but also in its Toronto office, said Dehler.

The cuts were not surprising, noted Quigley, though March was able to hold out longer than the likes of Nortel Networks since it’s a privately-held company.

Sherry said she’s not aware of forthcoming cuts at Mitel, but noted, “We’re always looking at keeping costs in line with revenue.”

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