MTS sells Allstream in $465-M deal to Zayo Group Holdings

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This article was published 23/11/2015 (3634 days ago), so information in it may no longer be current.

Jay Forbes and his new management team at MTS are nothing if not efficient.

This morning the company announced a binding agreement to sell its Toronto-based Allstream division to Zayo Group Holdings Inc, for $465 million in a cash deal.

That’s only six months since the MTS board declared Allstream a non-core asset and commenced a process of paring back its workforce and increasing its profitability.

After some closing adjustments, MTS expects to realize net proceeds of approximately $425 million in the deal with Zayo, a Colorado-based communications infrastructure service provider.

That means it will net MTS about $20 million more than it would have realized from the failed 2013 deal with Accelero Capital.

That previous deal was rejected under the national security provisions of the Investment Canada Act.

Forbes indicated there were no particular concerns regarding closing and that potential suitors were scrutinized for their ability to close and Ottawa consulted through the process.

Closing is expected to happen during the first quarter of 2016.

He said use of proceeds will be determined after closing though some is likely to go to retire some debt, including the $120 million in pension solvency prepayment made in May.

Forbes said, “With Allstream’s exit MTS is poised for success as it too moves ahead. We have a new executive team, a new strategy and a new future. We face our competitive market as a focused telecom, one with tremendous and unique strengths that we are working to leverage.”

But even Forbes believes the market will still see MTS as a possible takeover target.

In an interview this morning with the Free Press, Forbes said it’s likely those rumours will persist.

“If anything I would expect this announcement of an Allstream sale will fuel additional rumours around the potential sale of MTS,” he said.

That’s because the Allstream division has long struggled to generate returns and its disposal likely makes MTS an even more attractive target to the big three of Bell, Rogers and Telus.

But Forbes dispelled any notion that management is preparing the company to be acquired.

“You don’t launch a multi-year, $100-million free cash flow improvement initiative because you think you are going to be sold any time soon,” he said.

He said the early retirement incentive plan is being well received by employees as is the efforts to transform MTS into a customer-first organization.

Zayo had revenues of $1.35 billion in its fiscal year ending June 30th, 2015 and has a market capitalization of $5.74 billion.

Allstream’s 30,000-kilometre Canada-wide high-performance fibreoptic network will be added to Zayo’s 140,000 kilometres network in the U.S. and Europe which includes extensive metro connectivity to thousands of buildings and data centres.

MTS shares were trending up this morning, up 50 cents or close to two per cent by 10:30 eastern time.

martin.cash@freepress.mb.ca