BUSINESS

MTS to sell Allstream to Egyptian investment group, focus on Manitoba market

05/24/2013 08:15 EDT | Updated 07/24/2013 05:12 EDT
WINNIPEG - Manitoba Telecom Services Inc. has agreed to sell its Allstream business telecommunications arm to an Egyptian investment group and use about half of the $405 million in proceeds to reduce its pension obligations and debt.

MTS, which operates Manitoba's largest telecommunications business, said Friday that the money it receives will be used to bolster its already strong position in its home province and tap growth opportunities.

"MTS goes forward as a pure-play telecom with a strong consumer franchise and significant free cash flow to support our dividend," said chief executive Pierre Blouin.

Asked whether the MTS board will now consider a sale of the main company, Blouin replied the company isn't looking for buyers, although he couldn't rule out an unsolicited offer.

"I think as a public company if somebody has something to say to us, or submit to us, we have a duty to look at it with our board. But we're not in the process about MTS and are currently focussing on getting the Allstream transaction to a close."

On the Toronto Stock Exchange, shares in the company (TSX:MBT) closed up $1.83, or 5.7 per cent, at $33.93.

Allstream's buyer is Accelero Capital Holdings, a Cairo-based investment group focused on telecommunications, digital media and technology companies.

Accelero was co-founded by Naguib Sawiris, an Egyptian businessman who was instrumental in financing the startup of small Canadian wireless company Wind Mobile when he headed Orascom Telecom Holding.

"This investment 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," Sawiris said in a statement.

Blouin noted MTS is in an unique position because it is the only telecom company in Manitoba to operate in five market segments — wireless communications, phone, Internet, television and home security.

"When you look at our competitors, Bell, Rogers and Telus are there — but for wireless only. And Shaw is there for the home products. But nobody has the same offerings as MTS has today and there's no indication that's changing either."

He said MTS has experienced moderate growth relative the telecom industry, which has been experiencing a long-term decline in some older types of service such as landline phones.

The biggest growth opportunities lie in expanding adoption of its LTE wireless service, which has an extremely high-speed suitable for multimedia services, and growth of fibre-optic Internet service to more residential customers, Blouin said.

"As we expand our footprint for LTE wireless, for broadband, for fibre to the home — that, on its own, has a high potential for creating growth for MTS with the product line we have today."

MTS also looking at how the market is evolving "around the web, around media, around content, around applications, around data."

The company said it expects to realize $405 million from the sale, of which $130 million will be used towards the company's pension plan and $70 million will be used to repay debt incurred in February to meet its pension obligations.

The deal, which is the result of a previously announced strategic review, is subject to certain conditions but it's expected to close later this year.

Blouin said the deal will enable Allstream to accelerate its strategy towards achieving long-term sustainable growth.

"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," Blouin said.

"This is a very positive development for Allstream employees, customers, business partners, and for increased competition across the Canadian enterprise market"

Allstream, formerly an independent company created after AT&T Canada restructured, competes in the business telecom market against Bell Canada, Telus and the other large Canadian telecommunications carriers.

MTS bought the company in 2004 in a bid to gain a national presence in certain types of telecom services, mainly geared to large corporations and institutions.

However, the Allstream deal has been controversial from the start and the company said Friday that it will recognize a loss of $50 million on a non-cash, post-tax basis.

It estimated the realized return on its investment in Allstream at minus one per cent.

Allstream currently employs about 2,000 people and serves about 50,000 businesses.

Accelero co-founder Ossama Bessada, said that Allstream fits within their strategy of providing capital and operational support to build value.

"We are committed to working closely with current management to invest in the business and drive enhanced competition in the Canadian telecommunications marketplace through innovation and superior customer service in the future," Bessada said.