Forbes downplays potential MTS selloff after Allstream deal

Manitoba Telecom Services Inc. CEO Jay Forbes on Monday downplayed the likelihood that the whole company could be sold in the wake of a deal to unload its business communications division, Allstream. MTS announced Monday that it has an agreement in place to sell Allstream to Boulder, Colo.-based Zayo Group Holdings Inc. for $465 million in cash. 3Macs telecom analyst Troy Crandall said the deal is positive for MTS, as Allstream has been "an albatross around the neck of Manitoba Tel every since it was acquired." MTS bought Allstream in 2004. The company went into creditor protection in 2002 under the name AT&T Canada, from which it emerged the following year, before changing its name to Allstream. "I wouldn't necessarily say it was a very good business decision to have bought Allstream in the first place, considering they were buying a company out of bankruptcy protection. ... Allstream has just been a challenged company right from the onset," Crandall said in phone interview. He said having a deal in place to sell Allstream increases the odds that a buyer acquires the rest of MTS, too. He said there has been talk about a complete takeover of MTS for some time, "but a lot of people had said it's a no-go until they get rid of this Allstream asset; no one wanted to touch it. And now it's gone, or will be gone by Q1 next year, and may pave the way for the potential acquisition of Manitoba Tel." However, Forbes told The Wire Report in a phone interview Monday that a selloff of MTS is not in the plans. "I would point to the fact that we, as part of our Q3 announcements, spoke to the launch of a multi-faceted, three-year transformation program at MTS to transform the organization into a customer-first company that has the capability of delivering over $100 million of free cash-flow improvements over the next three years, so clearly we are planning for the mid-to-long term and the future success of this organization," he said. Forbes said that the sale of Allstream will allow MTS to focus more on improving service for its customer base in Manitoba. "As you can appreciate, with an organization of Allstream's scope, scale and its historic status as an underperformer, it has taken quite a bit in the way of leadership resources from MTS Allstream," he said. "With Allstream no longer forming part of this organization, we can redeploy those resources to concentrate our focus on the transformation of MTS into a customer-first organization." Crandall said MTS could be run more efficiently as part of larger company because, as a regional operator, it currently lacks the scale to purchase equipment such as handsets and network components at prices as low as what the national carriers pay. BCE Inc. is seen as the most likely buyer, at least for MTS’ wireline operations, Crandall said. "Bell and Manitoba Tel have, in the past, been quite close," Crandall said, adding that Bell once held an equity stake in MTS. Due to regulatory considerations, Crandall said he can envision a situation in which one company takes over MTS' wireline operations and another buys its mobile services, citing Rogers Communications Inc. as a possible suitor for the latter. "The government may possibly have some issues if they were to try to sell the wireline and the wireless assets together," Crandall said. Officials from Bell and Rogers declined to comment on the matter. Telus Corp. could also be a potential buyer, Crandall said, though he added this scenario is less likely given the vast amount of money Telus has spent in wireless spectrum auctions in recent years. TD Securities analyst Vince Valentini said in a research note in September that both Bell and Telus might have an interest in purchasing MTS. Rogers is an unlikely buyer of MTS' wireline operations, given its telephone infrastructure would not easily integrate with Rogers' cable network, Crandall said. And any attempt by Shaw Communications Inc. to buy MTS would be unlikely to get regulatory approval since it would create a near monopoly for wireline communications services in Manitoba, he added. MTS previously tried to sell Allstream to Egypt-based Accelero Capital Holding in 2013 for $520 million, but the federal government denied the deal due to national security concerns. MTS said in a press release Monday, regarding the proposed sale of Allstream to Zayo, that it "held discussions with relevant regulatory stakeholders which we believe will help facilitate orderly approvals, including national security approval." Zayo provides communications infrastructure services to business customers. It trades on the New York Stock Exchange and saw revenue of $1.35 billion US in its last fiscal year, according to documents on its website. It has several offices throughout the United States, and a presence in the United Kingdom and France. Zayo said in a press release Monday it is "primarily interested" in Allstream's fibre network and data centres. This includes more than 9,000 kilometres of metro fibre networks in Toronto, Montreal, Vancouver, Calgary and Ottawa, a 20,000 fibre long-haul network connecting all of Canada's major markets and 10 access points in the U.S., as well as colocation data centres in Toronto, Montreal and Vancouver. Zayo said it considers about half of Allstream's business to be a "direct fit with Zayo's existing core business." That part of the business, centred on communications infrastructure, will be rebranded Zayo Canada, it said. It also plans to create two separate divisions from the other parts of the company; one focused on voice and integrated communications, and another on small-business customers, it added. In May, MTS said about 100 Allstream employees had recently left the operation, and another 400 had received notice their jobs were ending in either 2015 or 2016, representing about 25 per cent of the division's staff. Regarding Zayo's plans for staff coming over from Allstream, Zayo spokeswoman Shannon Paulk said in an email: "It's too early to say what the specific impact on employees will be. Post close, we will begin a comprehensive integration process and decisions will be made then." — With reporting by Derek Abma at dabma@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Forbes downplays potential MTS selloff after Allstream deal

News | November 23, 2015

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Forbes downplays potential MTS selloff after Allstream deal

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