Canada’s turbulent telecommunications landscape shifted again Friday when Manitoba Telecom Services Inc. announced a deal to sell Allstream to a billionaire foreign investor, news that delivered many of the dramatic elements industry watchers love to pore over.
After a lengthy strategic review, Manitoba Telecom Services Inc. has finally struck a deal to sell its enterprise telecommunications unit Allstream in a transaction that values the business at $520-million, it said Friday.
The Winnipeg-based company has signed an agreement with Accelero Capital Holdings, former Wind Mobile backer Naguib Sawiris’s investment vehicle.
For one, although the Winnipeg-based company maintains it is focused solely on closing the transaction, a slimmed-down MTS, finally rid of its enterprise telecom unit could become a takeover target itself.
The deal also sparked interest due to the buyer: Egyptian telecom magnate Naguib Sawiris, founder and non-executive chairman of Accelero Capital Holdings, which plans to pick up Allstream in a deal MTS said values it at $520-million.
Mr. Sawiris is the former head of Orascom Telecom Holdings SAE, which was one of Toronto-based Wind Mobile’s original backers.
Wind’s current foreign owners are looking for a buyer for the wireless startup, according to sources, and Accelero Capital is said to be interested.
Allstream has 30,000 kilometres of fibre network across the country and that strength in what is known as “backhaul” could make for a compelling combination with Wind’s wireless network.
MTS chief executive Pierre Blouin said Friday the deal will allow the company to focus on expanding the footprint of both its wireless and broadband businesses in Manitoba.
The Allstream unit operates nationwide in contrast with MTS’s regional strength in that province offering residential and small business services including wireless, broadband Internet and television.
Mr. Blouin said the deal will also deliver capital MTS can use to finance purchase of wireless spectrum in a government auction later this year and help clean up the pension funding liabilities on its balance sheet.
He said MTS is not considering a strategic review of the rest of its business, noting in an interview, “The process to get [the Allstream] transaction to closing is still an extensive one. We’re focusing on that.”
Some speculate that one of the country’s dominant telecom players such as BCE Inc. or Telus Corp. could consider buying it down the road.
“Without Allstream, we believe MTS could become a takeout target for either Bell or Telus over the longer term,” RBC Capital Markets telecom analyst Drew McReynolds said in a note to clients Friday.
Scotiabank analyst Jeff Fan was more skeptical about the prospect, noting Friday that remaining pension funding liabilities and regulatory risk could be barriers to a sale.
Allstream has been the subject of a review since last September after the federal government liberalized the rules on foreign investment in telecoms with less than 10% of the Canadian market.
“We were looking for a strong Canadian telecom opportunity and Allstream does fit the profile,” Ossama Bessada, managing partner and co-founder of Accelero, said in an interview Friday, adding that the opportunity to get into the IP (internet protocol) space was compelling.
Allstream has more than 50,000 customers for its converged model of voice, data and video services for businesses all delivered through IP.
Mr. Bessada said Accelero’s plans for Allstream include increased investment, expanding its product portfolio and improving efficiencies.
He said his firm’s sole focus on Allstream’s enterprise business as well as its ability to make investments unencumbered by public reporting to shareholders will be an asset.
“We’re not a public company, we’re not bound by investors, analysts. If we can invest for two, three years, whatever it takes, we don’t care about dividends, about negative cash flow,” he said.
Mr. Bessada, who is based in Toronto, would not comment directly on Accelero’s interest, if any, in acquiring Wind Mobile.
The Allstream deal still requires regulatory approval including the green light from Industry Canada, which will consider the net benefit to Canada of the foreign investment.
Without Allstream, we believe MTS could become a takeout target for either Bell or Telus over the longer term
Wind launched its wireless business in 2009 after acquiring spectrum licences in the 2008 auction for the radio airwaves wireless providers use to build their networks.
Amsterdam-based VimpelCom Ltd. later acquired majority ownership of Orascom and Mr. Sawiris left the company.
VimpelCom struck a deal with Wind’s Canadian founder Anthony Lacavera to buy 100% of his ownership interest this January.
But in March, sources said VimpelCom had put the upstart provider up for sale and Mr. Lacavera was said to be working with Mr. Sawiris on a bid to re-acquire Wind.
“This is a very positive development for the competitive landscape,” Mr. Lacavera said Friday of Accelero’s investment in Allstream.
He declined to comment on his plans for Wind or business dealings with Accelero, but said, “I think [the Allstream deal] validates foreign interest in the Canadian telecommunications market.”
“The incumbents are saying there’s no foreign interest in Canada and that’s not true,” Mr. Lacavera said.
MTS acquired Allstream, which was formerly known as ATT Canada, in 2004 for $1.7-billion.
Mr. Blouin said Friday that the initial purchase included about $3-bilion in tax losses and about $300-million in cash.
“It’s not the return that I think originally people would have been thinking about but we were able at least with this transaction to bring it back very close to neutral over all these years,” he said.
MTS said Friday it expects to realize $405-million from the sale, net of closing costs, and will use $130-million to make an additional contribution to the MTS pension plan and repay $70-million in short-term indebtedness it incurred in February to address the pension obligations.
That should bring the pension plan’s solvency rate to 85%, MTS said, easing funding requirements for the company.
Accelero has paid a deposit of $55-million and the deal is set to close in the second half of the year, subject to regulatory approvals.