Sawiris re-enters Canadian market with deal for Allstream

Former Wind Mobile backer Naguib Sawiris said he is re-entering the Canadian telecom market with a “long-term commitment” and the purchase of Allstream from Manitoba Telecom Services Inc. in a deal valued at $520 million. Sawiris' Paris-based investment firm, Accelero Capital Holdings, which has also submitted an offer to purchase Wind Mobile Canada from Amsterdam-based VimpelCom Ltd., will purchase the Allstream business services unit and its national fibre network, Accelero said in a release Friday. "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. “Allstream is the leading competitor to the incumbents in the Canadian enterprise market, and a fast-growing player in the IP space with an advanced coast-to-coast fiber network,” he said. Sawiris, a billionaire from Egypt, is Accelero's non-executive chairman and co-founder, and former owner of Cairo-based Orascom Telecom Holdings S.A.E., which originally backed Wind Mobile's entry into Canada through lending and a non-controlling stake. VimpelCom purchased Orascom in 2011. Allstream, MTS' business services division, provides IP services to large, medium and small companies across Canada. It has a 30,000-kilometre fibre-optic backbone network for IP connectivity, digital switching, Ethernet, and security services. Ossama Bessada, managing partner and co-founder of Accelero who formerly served as CEO of Wind Italy and head of VimpelCom's Europe and North America operations, said in a statement that Allstream fits into Accelero's strategy of investing in “attractive companies where our capital as well as our strategic operational support can create an opportunity for value creation.” The purchase affirms Accelero's interest in becoming active in the Canadian telecom market as Industry Minister Christian Paradis says he aims to ensure the presence of four wireless competitors in each region of the country. Accelero has partnered with outgoing Wind Mobile CEO Anthony Lacavera in an offer to purchase Wind from VimpelCom, The Wire Report reported in April. Analysts had speculated that Accelero would be interested in Allstream's fibre network, in part for its backhaul and network transport support. MTS said in a release Friday that the agreement completes the company's strategic review launched last year. The release said the $520 million value includes debt payments and pension liabilities, with MTS receiving net proceeds of about $405 million from the sale. “We will go forward as a pure play telecom with a strong consumer franchise and sustainable free cash flow to support our dividend,” Pierre Blouin, chief executive of MTS, said on a conference call with analysts Friday. “We will have sufficient capital to invest in wireless spectrum and to continue bringing fibre-to-the-home, LTE wireless and other products and services to more communities across Manitoba,” he said. The company said the deal will mean $240 million in payments to reduce a $420 million accounting deficit related to pensions. Analysts on the conference call Friday had several questions about MTS' numbers, trying to understand pension-related payments and net proceeds. Dvai Ghose, a telecom analyst with Cannacord Genuity, said in a phone interview he believes the $240 million in pension payments will come off the $405 million in proceeds, leaving $165 million in capital for MTS to help expand LTE wireless services, its fibre-to-the-home network, and wireless spectrum holdings. “That's $165 left, and don't forget, there's two spectrum auctions coming up,” Ghose said, referring to the 700 MHz auction scheduled to start in November and an auction for the 2500 MHz band the following year. Blouin said in a separate conference call with journalists Friday that MTS intends to secure spectrum licences in the 700 MHz auction and expand its fibre-to-the-home and LTE wireless networks into more Manitoba communities. “In terms of going outside of Manitoba with a wireless offering or other large offering, today we have no such plan,” Blouin said. The chief executive said the deal was completed Thursday night after “a wide ranging review of alternatives and an active auction process.” He said there were a “large number” of offers for the company, including some from strategic and private investors inside and outside of Canada. RBC Capital Markets analyst Drew McReynolds and Macquarie Capital analyst Greg MacDonald speculated in research notes released Friday that incumbents Telus Corp. and BCE Inc. may be interested in acquiring MTS following the Allstream sale. Blouin said MTS would consider offers, though the company has no immediate plans to pursue a sale. “As a public company, if someone 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 a process about MTS and are currently focusing on getting the Allstream transaction to a close,” Blouin said. The company said it expects to see a return on investment for Allstream, since its acquisition in 2004 for $1.7 billion, of negative one per cent. “It’s not the return that I think originally people would have been thinking about, but we were able, at least with this transaction, to bring it back to very close to neutral after all these years,” Blouin said. MTS said its board approved the deal and that it is expected to close in the second half of 2013, subject to approvals by Industry Canada and the Competition Bureau. MTS said it has agreed to retain pension obligations for Allstream's retirees and former employees, and that Allstream will take on future pension obligations for current employees. —With reporting by Simon Doyle at sdoyle@thewirereport.ca and reporting and copy editing by Nicholas Kyonka at nkyonka@thewirereport.ca

Sawiris re-enters Canadian market with deal for Allstream

News | May 24, 2013

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