Government likely to block a Rogers-Birch Hill deal for Wind: analysts

Industry Canada would most likely block a deal to acquire Wind Mobile it it involved significant funding from Rogers Communications Inc. or another wireless incumbent, industry analysts said. In a news report Friday, the Globe and Mail said Rogers is working with Toronto investment firm Birch Hill Equity Partners Management Inc. to buy Wind in an effort to “sidestep” Industry Canada rules that prevent the new entrant carrier from being sold to incumbents Rogers, BCE Inc. or Telus Corp. Analysts said they are skeptical of the possible deal—in which Rogers would fund Birch Hill’s bid for Wind without acquiring an equity stake in the new entrant—and said it would not be likely to receive government approval. “Given its previously published view on spectrum concentration, we believe there is a low likelihood that Industry Canada would approve any structure involving significant funding from an incumbent and/or an incumbent being the major pro-forma customer of a new entrant,” Macquarie Capitals analyst Greg MacDonald said in a research note. According to the Globe report, Birch Hill is in talks to buy Wind from current owner Globalive Wireless Communications Inc. and sign a network-sharing agreement with Rogers, the country’s largest wireless provider. Under that agreement, the newspaper said, Rogers would gain access to Wind’s wireless spectrum to boost its own network’s capacity for wireless services. Birch Hill is also mulling an acquisition of new entrant carrier Dave Wireless Inc. (operating as Mobilicity) using Rogers’ funding, the newspaper said. Rogers spokeswoman Patricia Trott said in an emailed statement Friday that the company is not commenting on the reported Birch Hill acquisition talks. "We don't comment on rumours or speculation," she said. Leading U.S. wireless carrier Verizon Communications Inc. is looking at purchases of Wind and Mobilicity and eying a potential entry into the Canadian wireless market in advance of the upcoming 700 MHz spectrum auction. The Financial Post reported Friday that Verizon has prepared a formal offer to acquire the new entrant carrier, which it will take to its board of directors for approval at a meeting next week. Analysts have said Wind and Mobilicity could sell for a combined $1 billion. Canaccord Genuity analyst Dvai Ghose said in note to clients that he questions whether Industry Canada would allow Birch Hill to acquire the new entrant carriers “if it is obvious that such transactions are merely designed to keep WIND and Mobilicity from Verizon ownership.” He said he believes Verizon is “well positioned” to acquire both new entrants “on favourable terms,” adding that the government is “bending over backwards to entice Verizon to Canada.” Bell, Telus and Rogers have launched public and government relations campaigns over the past two weeks, opposing Industry Canada rules that they say favour the entry of foreign player Verizon at the expense of Canadian carriers. The incumbents take issue with auction rules that would limit them to a single block of “prime” 700 MHz spectrum each in the upcoming auction, while allowing small players and new entrants, including Verizon, to acquire two of the four prime blocks in each region of the country. The incumbents also oppose rules that prevent them from acquiring the new entrant carriers or their spectrum until next year, while Verizon and other players are permitted to acquire those carriers. Bell, Telus and Rogers have called on the government to “level the playing field,” arguing that Canadian jobs and the Canadian economy could be at risk if foreign players are favoured under Canada’s wireless policy. Business groups are supporting the call for “fair” treatment of Canadian companies, including the Canadian Council of Chief Executives and the Canadian Chamber of Commerce. In a letter addressed to Prime Minister Stephen Harper Friday, the Quebec Employers Council called on the government to “improve” its wireless rules to remove restrictions that favour large foreign competitors. It said the rules run counter to the “spirit” of regulatory and legislative changes in the industry that were designed to promote competition. “This breach could ultimately prove to be harmful to the economy of Canada and Quebec, particularly,” the council said. Opposition to the incumbents’ public campaign has also picked up, and on Friday took aim at the reported Birch Hill talks for Wind. Consumer groups the Public Interest Advocacy Centre (PIAC) and the Consumers’ Association of Canada said in a release Friday that the Rogers-Birch Hill plan is “a sign of desperation” as the incumbents fight to keep Verizon out of the country. “Bell, TELUS and now Rogers are trying anything to keep the new entrants from being bought by Verizon and facing effective wireless competition,” John Lawford, PIAC’s executive director, said in the release. PIAC released a “rebuttal backgrounder” to respond to the incumbents’ issues with Industry Canada’s rules and potential impacts on the Canadian market and economy. The group said that Industry Canada’s rules do not clearly favour a foreign competitor “but is rather a careful and controlled process for adding much needed competition to the Canadian wireless market to benefit consumers.” PIAC challenged the incumbents’ claim that a foreign competitor’s entry into the market could lead to a loss of Canadian jobs, arguing that more competition would lower consumers’ monthly bills and “boost the Canadian economy by far more than job losses slows it down.” Wind Mobile chief executive Tony Lacavera said in a telephone interview Friday that the incumbents’ argument that the entry of a foreign competitor would cause job losses “has the most legs” among the Canadian people and politicians. “But if you’re , you’re not the first American company to come to Canada,” he said, adding that a foreign competitor could make assurances to the government that it would not negatively impact the economy. “You do what Ford did. You commit to invest heavily in the country and you commit to build new jobs in the country,” Lacavera said. Desmond Lau, a research associate at Veritas Investment Research, said in a note to clients Friday that a Verizon acquisition of the new entrant carriers could also cause Accelero Capital Holdings to renege on its deal to acquire Manitoba Telecom Services Inc.’s Allstream division. Accelero, owned by original Wind backer Naguib Sawiris, agreed in May to buy Allstream for $520 million. Allstream, MTS’ business services division, provides IP services to large, medium and small companies across Canada. Accelero submitted an offer for Wind earlier this year, and at the time of the Allstream acquisition, analysts speculated that it would support an Accelero acquisition of Wind by allowing the company to use Allstream’s fibre backhaul infrastructure to support a wireless network. “f Verizon enters Canada and acquires Wind Mobile and Mobilicity, may be less compelled to own Allstream,” Lau said. “In this scenario, may prefer to walk away from the deal and lose the $55 million deposit paid to MTS.” —With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Government likely to block a Rogers-Birch Hill deal for Wind: analysts

News | August 2, 2013

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Government likely to block a Rogers-Birch Hill deal for Wind: analysts

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