UPDATE 2-Canada's Mitel to buy Mavenir to expand into mobile services

(Adds quote from Mitel CEO)

March 2 (Reuters) - Canadian telecom services provider Mitel Networks Corp said on Monday it would buy U.S.-based Mavenir Systems Inc for $560 million in a bid to expand its telephone services to the high-speed 4G LTE mobile market.

Shares of Toronto-listed Mitel, which said the deal would “modestly” hurt profits in the second half of 2015, were down about 15 percent.

“Investors are absorbing it,” Mitel’s chief executive, Rich McBee, said in an interview. “A lot of our investors don’t know who Mavenir is, but when they look underneath the covers they will realize this deal makes sense.”

Stephens Inc analyst Barry McCarver said that “investors were hoping for an accretive deal in 2015, and this is not going to be accretive for about a year, year and a half.”

Richardson, Texas-based Mavenir’s stock jumped nearly 23 percent to $17.80, making it the third-biggest percentage gainer on the New York Stock Exchange.

McBee said Mitel first approached Mavenir in July about a tie-up.

The cash-and-stock deal comes a few months after Mitel’s bid to buy U.S.-based ShoreTel Inc was scuttled.

Mitel will still be acquisitive but probably not pursue another large deal until this one is integrated, McBee said.

Buying Mavenir will help Mitel tap the market for voice over long-term evolution, a technology known as VoLTE that repackages voice calls as data and transmits them over carriers’ high-speed data networks.

Mavenir’s customers include T-Mobile and Verizon Communications.

“Until now, Mitel has been focused on enterprise, but mobility is also very important, especially as carriers focus on bringing new applications to market,” McCarver said.

Mitel serves business customers with unified communications services, mostly over landline phones.

Mitel said on a conference call that it was targeting annual cost savings of $20 million through the Mavenir deal, which is expected to close in the second quarter.

Mavenir’s stockholders will receive $11.08 in cash and 0.675 Mitel share for every Mavenir share held. The offer was valued at $17.94 a share, based on Mitel’s Friday closing price.

BofA Merrill Lynch is Mitel’s financial adviser, and Paul, Weiss, Rifkind, Wharton & Garrison LLP and Osler, Hoskin & Harcourt LLP are its legal counsel.

White & Case LLP are legal counsel to BofA Merrill Lynch and Credit Suisse, the lead arrangers of financing.

Morgan Stanley is acting as financial adviser to Mavenir and Andrews Kurth LLP, and Davis Polk & Wardwell LLP are its legal counsel. (Editing by Joyjeet Das and Leslie Adler)