Manitoba Telecom Services is getting out of the national business market in a deal that might end up re-invigorating wireless carrier Wind Mobile. But it also raises the possibility of MTS being bought by a bigger carrier.
MTS said Friday morning that it has sold its Allstream division, which sells business services outside its home province to Accelero Capital Holdings, an investment management group that specializes in telecommunications companies, for $520 million plus debt.
MTS bought Allstream — which had been AT&T’s Canadian division — in 2004 for $1.7 billion in hopes of making the telecom carrier a national player. Allstream has a fibre network across much of the country.
Accelero’s non-executive chairman and co-founder is Naguib Sawiris, the Egyptian-based telecommunications entrepreneur whose Orascom Telecom Holdings was the major financier of Wind Mobile when it began in 2008. Sawiris eventually sold Orascom to VimpelCom, which is trying to consolidate complete control over the Canadian carrier before deciding what to do with it.
In March, Wind’s biggest Canadian shareholder and chairman Anthony Lacavera told IT World Canada that he and Sawiris might mount an offer to buy Wind from VimpelCom.
If the Allstream deal goes through it would give Sawiris and Accelero a base on which to buy Wind, firm up its financial base and give the startup carrier a better opportunity to sell wireless to business customers.
Because Industry Canada still has to rule on VimpelCom’s offer to buy out Lacavera’s share of Wind, Lacavera wouldn’t comment on Wind’s future owners. However, in an interview he did say the Accelero deal “validates that there is foreign (telecom) interest in Canada. I think it makes it clear to the government there is a competitive heartbeat out there and they should be considering all of their (mobile) policies in that context — roaming, tower sharing, 700 MHz auction rules.”
The MTS deal follows a strategic review that looked at options for the division and means MTS is now concentrating on Manitoba. However, financial analysts speculate that it also could mean publicly-traded MTS is open to be bought. Shedding Allstream makes it a better acquisition target.
“This transaction is the successful culmination of a diligent process to determine the best way to create shareholder value and drive strong, competitive and sustainable futures for both MTS and Allstream,” MTS chairman David Leith said in a statement. “We believe this transaction represents attractive value for Allstream, is in the best interests of the Company, its customers, employees and business partners, and that it will increase the level of investment and competition in Manitoba and across the Canadian business market.”
“This transaction makes MTS a stronger, more focused and more valuable company,” said CEO Pierre Blouin. “MTS goes forward as a pure-play telecom with a strong consumer franchise and significant free cash flow to support our dividend. We will also have sufficient capital to invest in wireless spectrum and to continue bringing fibre-to-the-home, 4G LTE wireless technology and other products and services to more communities across Manitoba, further solidifying our position as the undisputed market leader in the province.”
The deal also enables Allstream to accelerate its strategy towards achieving long-term sustainable growth, Blouin added. “Accelero brings access to capital, telecom expertise and intimate knowledge of the Canadian marketplace. We have confidence that Accelero and Allstream’s management will together succeed in realizing Allstream’s full potential. This is a very positive development for Allstream employees, customers, business partners, and for increased competition across the Canadian enterprise market.”
In an audio conference with reporters Blouin said the proceeds of the sale will help MTS bid for frequencies in the 700 MHz spectrum auction, which is scheduled for November.
In a statement Swaris said the deal “reflects Accelero’s long-term commitment to the Canadian telecommunications market, and our belief in the opportunity that exists to provide capital to enhance the competitive landscape in Canada. Allstream is the leading competitor to the incumbents in the Canadian enterprise market, and a fast-growing player in the IP space with an advanced coast-to-coast fiber network.”
The MTS deal still needs to be approved by Investment Canada.
MTS [TSX: MBT
] began reviewing the future of the Allstream division when the federal government changed telecom investment rules last fall, allowing foreign companies to buy carriers with less than 10 per cent of the market.