Inter Tel, Inc. (NDAQ:INTL) shares moved up $0.20, or 0.87%, to $23.27 today after Steven Mihaylo filed a Schedule 14A to solicit proxy materials and nominate his slate of five directors to the company's Board. Mr. Mihaylo, a 19.4% stakeholder, first contacted the Board of Directors on January 19, 2007, when he sent a letter expressing hope that the two parties could develop a plan of action to lead the company forward with a renewed focus on enhancing shareholder value in the near and longer term. On January 22, 2007, Mr. Mihaylo received a response letter from the company expressing appreciation for the constructive tone and indicating that the company would contact him shortly to discuss the ideas raised in the letter. Following this exchange, Mr. Mihaylo and the company held several discussions in an attempt to resolve the differences between the two and avoid a proxy contest. However, these discussions were unsuccessful.

What changes does Mr. Mihaylo want to make? Well, his January 19th letter outlined nine major changes:

1. Consider reducing the size of Inter-Tel's Board from 11 to 10 members, with the Board consisting of (a) the Chief Executive Officer, (b) Dr. Puri, Mr. Urish and me, (c) three other existing outside members of the Board, and (d) three new independent directors mutually acceptable to the Board and me. Alternatively, in order to save costs and facilitate the scheduling of Board meetings, I would be amenable to a 7 member Board, consisting of (a) the Chief Executive Officer, (b) Dr. Puri, Mr. Urish and me, and (c) three new independent directors mutually acceptable to the Board and me.
2. Retain a financial advisor to advise the Board on the feasibility and financial impact of a Dutch-auction self tender offer to repurchase between $200 million and $250 million of the Company's common stock.
3. Disband the Special Committee, thereby eliminating all of the costs associated therewith.
4. Direct management to (a) undertake an intensive cost-benefit analysis of (i) discontinuing product development on the Axxess and (ii) redirecting the engineering effort to "gateway" products and "hosted services" offerings, including the necessary billing platform for hosted services, and (b) report the results of that analysis to the Board. I believe these actions will produce significant cost savings and provide significant sales opportunities.
5. Consolidate the Company's multiple engineering facilities into the Chandler location. This will reduce overhead and improve productivity, while encouraging new and better ways to speed up product development.
6. Explore the sale of the Company's Irish subsidiary, unless its performance significantly improves within a set period of time. This would enable management to concentrate on more profitable opportunities, as well as raise additional cash to offset the costs of the self tender offer.
7. Explore ways to better utilize the Company’s 15 acre campus in Reno.
8. Undertake an evaluation of the recommendations in the consulting report that the Mihaylo/Vector Group provided to Inter-Tel as a result of the Settlement Agreement executed in May 2006.
9. Defer implementation of the proposed by-law amendments until the foregoing issues are actively considered.

Many of these changes would create immediate value for shareholders while others are focused on improving the company's longterm prospects. Stock repurchases tend to increase the stock price while the sale of the company's Irish subsidiary would likely generate a substantial amount of cash. Meanwhile, the other cost cutting measures outlined could help boost earnings per share in future quarters. Combined, these recommendations make a lot of sense (and we have no communications from the company explaining the issues they had with them). And with Mr. Mihaylo's 19% stake in the company, a proxy contest could have some traction. This makes INTL a stock worth watching!

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