Mitel Networks Corp (MNW.TO) said on Friday it would buy fellow voice and telephony gear maker Polycom Inc (PLCM.O) for about $1.96-billion in cash and stock, satisfying a demand from activist investor Elliott Management.

Upon closing, former shareholders of San Jose, California-based Polycom are expected to hold about 60 per cent and current Mitel shareholders are expected to hold about 40 per cent of Ottawa-based Mitel’s outstanding shares.  And while the combined company will be headquartered in Canada, Mitel’s CEO said the transaction is not a tax inversion.

“Taxes weren’t the driving factor for this,” Richard McBee told BNN in an interview.  “We had all sorts of attorneys and tax experts looking at all the aspects of this – but we do that in any deal that we do.”

Some companies have used tax inversions to move their domiciles to lower-tax jurisdictions.  The practice has drawn the ire of the U.S. government, which recently clamped down on the practice.

“These are two very big companies that have very large installed bases,” McBee added.  “We always pay the taxes in the jurisdiction that products are sold.  This wasn’t a tax thing.” 

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.

The deal, worth $13.44 per share as of Thursday, represents a premium of 9.5 per cent to Polycom’s last close and is expected to be accretive to Mitel’s shareholders in 2017.

Hedge fund Elliott Management, which has been pushing the companies to merge since October, said on Friday that it supports the Mitel-Polycom deal.

Elliott holds a 6.6 per cent stake in Polycom and a 9.7 per cent stake in Mitel.

Mitel made the initial approach to buy Polycom, Reuters reported in March, citing sources familiar with the matter.

McBee will lead the combined company while Mitel’s Chief Financial Officer Steve Spooner will continue in that role, the companies said.

Polycom directors will take two seats on the Mitel board, once the deal closes.

Mitel said it plans to finance the cash portion of the deal with cash on hand from the combined business and proceeds from new financing. The company also said it has received about $1.1-billion of financing from Bank of America Merrill Lynch.

- With files from BNN