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BCE to buy Manitoba Telecom in $3.9B deal

Manitoba Telecom Services Inc. had long been rumoured to be a takeover target and BCE Inc. hit that target Monday with the announcement of a friendly deal to buy MTS, valued at $3.9 billion.

MTS is one of the few regional independent rivals to Canada’s three main national telecommunications companies. The sale of its national enterprise division, Allstream, which closed in January, was generally seen as a pre-requisite for this deal to be done.

The agreement announced Monday would add Manitoba’s largest phone, Internet and wireless company to BCE’s Montreal-based business, which includes the CTV television network, the former Chum and Astral radio chains and Bell Canada.

"This is a huge deal for MTS as well as the telecom industry in Canada," said MTS CEO Jay Forbes in an interview. "This is the highest multiple ever paid for an integrated telecom in North America. Clearly BCE recognizes the value of the franchise we have built here."

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Hey there, time traveller!
This article was published 2/5/2016 (533 days ago), so information in it may no longer be current.

Manitoba Telecom Services Inc. had long been rumoured to be a takeover target and BCE Inc. hit that target Monday with the announcement of a friendly deal to buy MTS, valued at $3.9 billion.

MTS is one of the few regional independent rivals to Canada’s three main national telecommunications companies. The sale of its national enterprise division, Allstream, which closed in January, was generally seen as a pre-requisite for this deal to be done.

WAYNE GLOWACKI / WINNIPEG FREE PRESS</p><p>Jay Forbes, president and CEO for Manitoba Telecom, in his office in the MTS Building at 333 Main Street. </p>

WAYNE GLOWACKI / WINNIPEG FREE PRESS

Jay Forbes, president and CEO for Manitoba Telecom, in his office in the MTS Building at 333 Main Street.

The agreement announced Monday would add Manitoba’s largest phone, Internet and wireless company to BCE’s Montreal-based business, which includes the CTV television network, the former Chum and Astral radio chains and Bell Canada.

"This is a huge deal for MTS as well as the telecom industry in Canada," said MTS CEO Jay Forbes in an interview. "This is the highest multiple ever paid for an integrated telecom in North America. Clearly BCE recognizes the value of the franchise we have built here."

In a conference call with analysts, Forbes said, "Under the terms of this transaction, MTS will achieve much more than it could have as an independent company."

"BCE’s commitment to invest $1 billion over five years into Manitoba’s telecommunications infrastructure will also contribute greatly to the prosperity of our province and the quality of our customer experience."

Some customers, stores going to Telus

BCE has also agreed in principle to sell about one-third of Manitoba Telecom’s monthly contract wireless customers and one-third of the MTS stores in Manitoba to Vancouver-based Telus Corp. (TSX:T).

"Clearly, Telus’s position in the wireless industry is significantly enhanced in this transaction, as is Bell’s," BCE president and CEO George Cope said.

"So you’d expect, I think, the market to continue to be as competitive as it has been — if not maybe even more — as a result of all this."

While it may be too early to say how it will all shake out, there seems to be cautious optimism in Winnipeg that the deal will not result in significant job losses. Forbes said while there may be some overlap in services, employees may have the opporunity to do other things in the company especially in light of Bell commitment to substantial capital investment in the next five years.

The deal requires approval from the Competition Bureau, the CRTC and the federal department of Innovation, Science and Economic Development — formerly called Industry Canada.

A spokesman for Innovation Minister Navdeep Bains said in an email that the department’s priority is ensuring competition for Manitobans while investment in rural service continues.

"While the government does not comment on individual companies’ plans, such transactions would be subject to all relevant regulatory approvals," the email said. "We will be looking carefully to make sure the concerns of Manitobans are addressed."

WAYNE GLOWACKI / WINNIPEG FREE PRESS</p><p>The MTS Building at 333 Main Street. </p>

WAYNE GLOWACKI / WINNIPEG FREE PRESS

The MTS Building at 333 Main Street.

'A significant precedent'

Aravinda Galappatthige, an analyst with Canaccord Genuity, said the deal could lead to further consolidation in the wireless industry.

"If BCE-MBT is approved, we believe this would set a significant precedent, as it would reduce Manitoba to a three-player wireless market from four," Galappatthige said in a note to clients.

Bell trails Toronto-based Rogers and Telus in terms of wireless customers, but BCE is by far the largest of the three in terms of overall market value at more than $51 billion, compared with $23.7 billion for Telus and $19.7 billion for Rogers.

Rogers had nearly 9.9 million subscribers to its various wireless services as of Dec. 31, compared with 8.45 million at Telus and 8.24 million at Bell. MTS Mobility had 483,000 subscribers.

Rogers ties severed

Under the deal, Manitoba Telecom (TSX:MBT) would need to sever its commercial ties with Rogers Communications Inc. (TSX:RCI.B), which has been providing it with wholesale access to the national market.

The network sharing arrangement with Rogers "is underpinned by a complex set of agreements that we plan to work through in the coming months as we work to closing," Forbes said.

But neither Forbes nor Cope provided details on what it might cost to unwind the Rogers relationship or what Telus would pay to acquire its share of the MTS wireless subscribers.

The acquisition would add 2,700 employees from Manitoba Telecom to BCE’s Bell phone business. Bell’s western operation would nearly double to 6,900 people and operate as Bell MTS, headquartered in Winnipeg.

While often allies, BCE and Manitoba Telecom have occasionally had a competitive relationship.

At one time, BCE was a large shareholder of Manitoba Telecom and there was widespread speculation that it would buy full ownership of the company.

But Manitoba Telecom took a different path to remain independent and decided to buy Allstream, a Toronto-based company that competes directly with BCE nationally for business customers. MTS completed the sale of Allstream to Zayo Group of Boulder, Colo., for $465-million cash in January — removing one obstacle to BCE.

BCE (TSX:BCE) is offering $40 per share, about 45 per cent in cash and 55 per cent in stock, for MTS shares (TSX:MBT). The deal would also see BCE assume about $800 million in debt.

BCE would have the opportunity to match any superior offer that may come forward. Each side has agreed to pay a $120-million break fee under certain circumstances if the deal isn’t completed.

Read more by Martin Cash.

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A look back at MTS history

History

Updated on Monday, May 2, 2016 at 3:49 PM CDT: Adds video.

4:01 PM: Format changes

6:48 PM: writethrough

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