MTS Inc. is selling off its Allstream Inc. telecom business to Boulder, Colo.-based communications infrastructure firm Zayo Group Holdings Inc., according to an announcement released this morning.
Zayo will be purchasing Allstream for $465 million in cash and will be the first foreign company to fully own a Canadian telecom service since the government loosened foreign ownership restrictions in 2012. Zayo said that its major interest in Allstream was the network – 20,000 kilometers of fiber connecting all major Canadian markets and 10 U.S. network access points.
Half of Allstream’s revenue is a direct fit with its existing core business, Zayo says. It plans to follow the same model it uses in the UK and France to create Zayo Canada on the back of Allstream’s business. It’s targeting $300 million of revenue and a high single-digit growth rate, according to a statement from Karl Maier, president of Zayo International, in a press release.
Zayo, which also provides colocation and cloud services to business customers, is also interested to carry on Allstream’s colocation operations. Though in the U.S., Zayo operates its colocation centres as carrier-neutral operations.
In a release from MTS, president and CEO Jay Forbes says that many suitors were considered for an acquisition deal, with multiple bids taking place. The Zayo offer represented the best interests for both MTS and Allstream, he said.
After closing costs, MTS is anticipating $425 million of cash to work with. Its considering putting that towards paying down debt acquired as a result of pension prepayments and spectrum acquisitions. More details will be released by the firm in the first quarter of 2016.
This isn’t the first time in recent memory that an acquisition deal involving Allstream has been announced. Egypt-based Accelero Capital Inc. was to acquire the solutions provider in 2013 for $520 million, but Canada’s federal government rejected the takeover, citing security concerns.
It’s expected that Zayo’s acquisition will take several quarters to complete.
MTS says it will retain responsibilities to pay out pensions and related assets to its retirees and other former employees.