Mobile services

Bell Canada Buys Manitoba Telecom in $3.1B Deal

Canadian telecom giant Bell Canada (BCE) is to acquire regional carrier Manitoba Telecom Services (MTS) in a C$3.9 billion (US$3.1 billion) deal that will give it mobile market leadership in a province home to about 1.3 million people.

The deal is the latest in a sequence of takeover moves by BCE Inc. (Bell Canada) (NYSE/Toronto: BCE), which has been locked in a fierce battle for Canadian subscribers with Rogers Communications Inc. (Toronto: RCI) and Telus Corp. (NYSE: TU; Toronto: T), the other two of Canada's "big three" telecom service providers.

The transaction will see BCE acquire all of the shares of Manitoba Telecom Services Inc. (MTS) in a cash-and-stock deal worth about C$3.1 billion ($2.5 billion), or C$40 ($32) for each MTS share. BCE will also take on the smaller player's net debt of about C$800 million ($641 million).

That looks like a generous arrangement for MTS shareholders, valuing the Manitoban company at a 22% premium to its closing share price on April 29. In a statement, BCE noted that its offer represented a 40% premium to MTS's closing share price on November 20, 2015, just before MTS agreed to sell its Allstream Corp. fiber-optic business to Zayo Group Inc. (NYSE: ZAYO). (See Zayo to Buy AllStream for $348M.)

There has been speculation that BCE would look to acquire MTS ever since the Allstream divestment was first announced.

According to BCE, its bid also equals about 10.1 times the EBITDA that MTS estimates it will generate this year.

MTS claims to have made about C$463.6 million ($371.5 million) in EBITDA before restructuring costs last year, on sales of around C$1 billion ($801 million).

By comparison, BCE's operating revenues in 2015 came in at about C$21.5 billion ($17.2 billion), while net earnings were about C$2.7 billion ($2.2 billion).

The takeover would give BCE an estimated 60% of mobile customers in the province, according to a report from Canada's Globe and Mail newspaper. Conscious of the competition concerns that will surround its proposals, BCE has offered to transfer about one third of MTS's mobile subscribers and one third of MTS's dealer locations in Manitoba to Telus.

"This transaction with Telus enhances wireless competition to the benefit of Manitobans while reducing the cost of our acquisition of MTS," said George Cope, BCE's president and CEO, in a company statement.

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BCE has also outlined plans to invest about C$1 billion ($801 million) over the next five years on the expansion of broadband, mobile and TV services in Manitoba.

The Manitoban capital city of Winnipeg is set to become the headquarters of BCE's Western Canada division after the deal goes through. Including MTS's 2,700 employees, that division will have about 6,900 staff members in total.

Over the last few years, BCE has acquired retail companies Glentel and The Source, broadcasting business CTV, shares in Maple Leaf Sports & Entertainment (a sports and real estate company). In 2012, it paid about C$3 billion ($2.4 billion) for control of media business Astral Media.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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