Mobilicity, under bankruptcy protection, being reviewed for possible sale

Mobilicity has filed for and received bankruptcy protection in advance of a possible sale of the company, Mobilicity said. In a release Monday evening, Mobilicity (operated by Dave Wireless Inc.) said it “applied for and received protection under the Companies’ Creditors Arrangement Act,” which will protect the company from debtholders as it engages a plan to recapitalize its operations and attempts to complete a “going-concern transaction.” “We made a decision to file in order to give the company some stability and to stop the clock to give us some time to restructure the company in an effort to get a transaction, that is before Industry Canada, approved in a timely fashion,” Stewart Lyons, Mobilicity’s president and chief operating officer, said in a telephone interview following an Ontario Superior Court proceeding. “It’s a transaction for the sale of the company,” Lyons said, adding that he cannot discuss the potential buyers or the transaction price. The federal government previously blocked incumbent carrier Telus Corp.’s $380-million offer to acquire the company in June, citing Industry Canada rules that prevent incumbent carriers from acquiring Mobilicity’s spectrum licences, which it acquired as a new entrant carrier during a 2008 spectrum auction. Mobilicity sought offers this summer after struggling to add subscribers since launching wireless services in 2010. The five-year moratorium on incumbents acquiring Mobilicity's new entrant spectrum licences is scheduled to expire in February, less than a month after bidding starts in an Industry Canada auction of coveted 700 MHz wireless airwaves. Industry Canada, in June, released new rules for the wireless industry that say the federal industry minister can block deals that involve transferring spectrum licences if the transfers could lead to an “undue concentration” of spectrum, leading to speculation that the government will not allow the incumbent carriers to acquire any new entrant spectrum, even after the moratorium expires. The federal government this fall launched a public relations campaign, responding to a summer campaign by incumbents Telus, BCE Inc. and Rogers Communications Inc., which notes the incumbents have a combined control of 85 per cent of Canada’s available wireless spectrum. Canaccord Genuity analyst Dvai Ghose said in a research note Monday that he believes the new transaction that Industry Canada is reviewing involves Telus. He said he does not believe the government would allow an incumbent to acquire the new entrant, though it could face legal action from Mobilicity’s bondholders if it does not allow a sale to go through after the company’s spectrum licence transfer moratorium is lifted in February. “In our view, Mobilicity and WIND’s spectrum will probably end up in the hands of the incumbents over time,” he said of Mobilicity and fellow new entrant Wind Mobile. Josh Blair, Telus’ chief corporate officer, told The Wire Report this month that Telus is still interested in acquiring the new entrant carrier if the government will permit it to do so. Lyons said Monday the transaction that’s currently before the department “respects the rules the department put out in June,” as well as the 2008 auction rules. “It respects all of the rules that are out there with respect to transfers,” he said. Mobilicity said in the release that the Ontario court approved a plan that would allow the company to continue receiving financing of up to $30 million from some of its current debtholders, and that Ernst & Young Inc. will serve as a monitor during the recapitalization process. In a court filing posted on its website Monday, Ernst & Young said Mobilicity’s management estimated that the $30 million in potential payments would allow the provider to continue operations until March. The company’s announcement comes after a decision within the last week by Industry Canada to allow auction bidders to talk to Mobilicity about a merger. Under the 700 MHz auction rules, companies registered for the auction are prohibited from discussing mergers and acquisitions with other registered bidders, or companies they are affiliated with, during the auction period of Sept. 17 to its end sometime in March or April. While Mobilicity did not apply to take part in the auction, companies that did apply include private equity firm Catalyst Capital Group Inc., Mobilicity’s largest debtholder, and Feenix Wireless Inc., which is owned by John Bitove, a Mobilicity equity investor and its executive chairman. Sources familiar with the situation told The Wire Report that Industry Canada has privately ruled that neither Feenix nor Catalyst is affiliated with Mobilicity, meaning bidders will be permitted to engage in, or continue, merger and acquisition talks with Mobilicity. Lyons said Monday that Mobilicity’s management team has “scoured the landscape” for prospective buyers, and that the transaction currently before Industry Canada “is a good transaction” and “the best outcome for stakeholders at this time.” He said the deal came about “not all that long ago,” though he declined to say whether it was in place before Industry Canada’s Sept. 17 deadline for auction applications. “We’ll hopefully have some more information for you soon,” he said. Industry Canada’s auction rules say that all merger and acquisitions must be wrapped up by at least 10 days before bidding starts on Jan. 14. Daniel Tisch, a spokesman for Catalyst, said in an emailed statement Monday that the company began seeking a CCAA filing about two weeks ago “to protect its rights" as Mobilicity's largest creditor. “While Mobilicity’s management objected strenuously, we are relieved they now realize that the conflicts between the operating and holding companies are so unmanageable that a CCAA filing and greater court oversight are required,” Tisch said. “A CCAA filing allows creditors to have their proportionate rights protected, unlike the company’s prior attempt to manipulate the process for the benefit of some members of a creditor class—at the expense of others in the exact same class, with the exact same rights,” Tisch said. “Under CCAA, it will now be impossible to prevent Catalyst from voting its full holdings. Any and all plans will require our approval. Catalyst remains committed to enforcing all its rights, and welcome the opportunity to do so now with the support of the court.” Catalyst and Mobilicity management were in court earlier this year over the company's financing and operations. —With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca and editing by Simon Doyle at sdoyle@thewirereport.ca

Mobilicity, under bankruptcy protection, being reviewed for possible sale

News | September 30, 2013

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Mobilicity, under bankruptcy protection, being reviewed for possible sale

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