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Thread: MTS buys Allstream

  1. #1
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    MTS buys Allstream

    For lack of a better forum to put this in:

    - Complementary fit creates formidable national provider with strong
    growth platform
    - Immediately accretive; expected annual synergies of $120 million
    increase value creation for shareholders
    - Shareholders to benefit from an intended substantial issuer bid of
    approximately $800 million
    - Annual dividend expected to increase by 120% to $2.20 per share

    WINNIPEG and TORONTO, March 18 /CNW/ - Manitoba Telecom Services Inc.
    (MTS), (TSX: MBT) has agreed to acquire all of the Class A and Class B shares
    of Allstream, (TSX: ALR.A, ALR.B; NASDAQ: ALLSA, ALLSB) in a transaction
    valued at $1.7 billion. This combines the strengths of North America's most
    profitable communications provider with Canada's largest and most profitable
    alternative communication solutions provider.

    The proposed transaction has been structured to benefit both companies'
    shareholders, allowing each to participate in the future opportunity of the
    expanded company. Under the terms of the arrangement agreement MTS will
    acquire all of the outstanding shares of Allstream at an offering price per
    Allstream share of $23.00 in cash plus 1.0909 MTS shares. The offer equates to
    a price of $81.12 per Allstream share, based on the closing price per MTS
    share on March 17, 2004. The offer represents a premium of approximately 19%
    for Allstream shareholders over the average closing price of Allstream shares
    on the TSX and NASDAQ on March 17, 2004.

    To improve liquidity and reduce ownership dilution, MTS intends to
    undertake a substantial issuer bid of approximately $800 million of its shares
    following the closing of the transaction. In addition, it is expected that the
    expanded company will produce strong and growing free cash flows. MTS intends
    to more than double its annual dividend to $2.20 per share (payable quarterly)
    representing an approximate 4.1% yield based on MTS's closing price on
    March 17, 2004.

    The transaction is expected to be immediately accretive to MTS's earnings
    per share and cash flow per share. While there is a complementary fit to the
    companies' operations, the transaction is expected to generate annual
    synergies of $120 million by 2005 through a combination of approximately
    $40 million of operating synergies and $80 million of tax savings as a result
    of Allstream's $3 billion in unused tax losses.

    "Since going public in 1997, we have created and delivered significant
    and enduring value for our shareholders," said Bill Fraser, President & CEO of
    MTS. "We have succeeded by focusing on our core competencies and prudently
    allocating our capital resources to deliver services to our customers. We're
    delighted to now be extending our capabilities and expertise to the national
    stage with Allstream, and we look forward to the opportunity for profitable
    growth and value creation this next step in our evolution represents."

    John McLennan, Vice Chairman and Chief Executive Officer of Allstream,
    said, "This is a complementary fit that makes strategic, financial and
    business sense. It provides our shareholders with value now and with
    continuing upside potential going forward. It creates a financially strong
    company with blue chip clients in Canada and the United States, and with
    service offerings in all segments of the industry. It provides the platform to
    participate in a bigger way in the telecommunications business. And it
    strengthens competition in Canada by creating a strong player in our industry
    and a more attractive national alternative for customers."

    On a pro forma basis, the company will have annual revenues of more than
    $2 billion, in excess of 7,000 employees, a leading-edge fibre based national
    network infrastructure and more than $2.9 billion in assets. Underpinning the
    company will be a strong balance sheet and very profitable operations. "We are
    combining the strengths of the most profitable communications provider in
    North America with Canada's largest alternative business communications
    solutions provider whose operations are already profitable," said Mr. Fraser.

    Allstream offers a broad portfolio of business solutions including data
    and voice connectivity, infrastructure management and information technology
    services. Allstream currently commands an 11% share of the Canadian business
    telecommunications market with an impressive blue chip customer base, and
    ranks second in terms of market share in every market in which it operates. By
    capitalizing on both companies' inherent strengths, the expanded company is
    well placed to better serve customers.

    MTS gains access to Allstream's leading edge fibre based network and
    ability to offer Gigabit Ethernet, IP - MPLS and other IP based solutions to
    its enterprise customers with out-of-province requirements. In addition MTS
    will be faster to market with solutions for its corporate customers and have
    greater flexibility for addressing their needs than in the past. MTS has made
    significant broadband investments in its provincial network over the past
    number of years resulting in an advanced network that is highly compatible
    with the Allstream platform. As such the transition to Allstream's platform is
    expected to occur seamlessly. For Allstream, the acquisition means it is now
    operating from a position of significant financial strength resulting in a
    stronger position in the marketplace and enhanced credibility.

    Bill Fraser will be President and CEO of the expanded company. Cheryl
    Barker, current President & COO, MTS Communications, will head up the Manitoba
    operations and John MacDonald, current President & COO of Allstream, will be
    responsible for national enterprise business. Wayne Demkey, currently MTS
    Executive Vice-President Finance & CFO will assume this responsibility for the
    expanded company. It is expected that Allstream's current management team will
    remain intact. Mr. McLennan, Vice Chairman and CEO of Allstream, will join the
    MTS Board of Directors, and will become Vice Chairman. In addition, the MTS
    Board of Directors has invited two of Allstream's current directors to become
    directors of MTS later in 2004.

    Both companies have well developed brands. MTS has operated in Manitoba
    for almost 100 years and the brand is well recognized and respected.
    Allstream, too, has established a well recognized brand and both brands will
    be utilized going forward. Headquarters for the expanded company will be
    located in Winnipeg. Operations for Allstream will continue to be based out of
    Toronto, addressing the needs of the national enterprise market.

    "The Allstream team has done a tremendous job focusing the company on its
    target markets and establishing Allstream's growing profitability and free
    cash flow generation," Mr. Fraser continued. "We intend to build on these
    successes under the umbrella of MTS's corporate strategies and business
    approach -- leveraging its state of the art network to build on Allstream's
    blue chip customer base and capabilities to offer next generation IP services
    to customers. And, given the complementary nature of our two businesses, we
    will hit the ground running."

    The Board of Directors of both companies have approved the proposed
    transaction. The Board of Directors of Allstream is recommending the
    transaction for approval by its shareholders at a meeting to be held in May
    2004. It is anticipated that a circular will be mailed to Allstream
    shareholders in early April 2004, with closing expected to occur in June 2004.
    MTS was advised by CIBC World Markets. Scotia Capital Inc. acted as financial
    advisor to Allstream Inc.

    In addition to approval from Allstream's shareholders, the transaction is
    subject to regulatory and court approvals, required consents and other
    customary closing conditions. If under specified conditions the transaction is
    not completed, Allstream has agreed to pay a break fee of $50 million.

    Under the terms of the arrangement agreement, Allstream shareholders who
    are Canadian residents will receive 1.0909 MTS common shares and $23.00 in
    cash for each Class A or Class B Allstream share. In order to comply with
    Canadian ownership limitations, Allstream shareholders who are non-Canadian
    residents will receive 1.0909 MTS Class B non-voting exchangeable preference
    shares and $23.00 for each Class A or Class B Allstream share. The MTS Class B
    preference shares will participate equally with common shares in all dividends
    and the Class B shares are exchangeable into common shares on a 1 for 1 basis
    subject to foreign ownership restrictions.

    MTS will continue to be listed on the TSX and will evaluate the
    appropriateness of obtaining a NASDAQ listing. It is intended that the MTS
    Class B preference shares will be listed on the TSX, subject to required
    approvals.

    FINANCIAL OUTLOOK
    -----------------

    It is expected that on a proforma basis the expanded company will achieve
    2004 revenues of approximately $2.0 to $2.1 billion, EBITDA of more than
    $700 million and free cash flow before dividends and buybacks of $280 to $310
    million. 2004 proforma earnings per share is forecast to exceed $3.00 and cash
    earnings per share is expected to range between $4.50 and $4.65. These
    forecasts exclude potential post closing 2004 synergies. Capital spending in
    2004 is forecast at $330 million.

    MTS POSITION ON INCOME TRUST CONVERSION

    The Board of Directors has concluded that an acquisition of Allstream is
    in the best interest of the Company and can best maximize long term value
    creation for shareholders. The Allstream transaction has a number of
    attributes of an income trust as a result of the availability of approximately
    $3.0 billion of non-capital losses.

    In evaluating a possible conversion to an income trust, management and
    the Board of Directors carried out an extensive review and analysis of the
    implications on the Company's ability to operate successfully as an income
    trust. An analysis of MTS's current and future cash flows and requirements to
    sustain the Company was carried out. In addition to ongoing operations
    expenses included in EBITDA, MTS also incurs additional significant cash
    costs. These include capital expenditures, interest expense, deferred charges
    and net funding of the MTS pension plan. The Board believes long-term
    shareholder value can best be achieved by continuing to follow MTS's proven
    strategies for delivering value to shareholders. Today's announced offer by
    MTS to acquire Allstream creates the opportunity for immediate value
    enhancement for shareholders and significant future growth potential.

    NOTICE OF INVESTOR CONFERENCE CALL

    A conference call with the investment community is scheduled for
    8:30 a.m. eastern time. The dial-in numbers are:

    - Toronto - 416-405-8532
    - North American Toll Free - 1-877-295-2825 and
    - International - 800-3420-4230.

    A live audio webcast of the investor conference call can be accessed by
    visiting the Investors section of the MTS website (www.MTS.ca) or the
    Allstream website (www.Allstream.com). A replay of the conference call will be
    available until midnight April 15, 2004, and can be accessed by dialing
    416-695-5800 or 800-408-3053 pass code 3022432 followed by the number sign.
    The audio webcast will be archived on the websites.

    International participants will need to dial the International Access
    Code normally used to reach North America prior to dialing the Global Toll
    Free number. We recommend that participants contact the long distance operator
    of the country they are in to obtain this code, since some countries have
    multiple International depending on the region they are in. It is important
    not to add a "1" in front of the Global Toll Free number unless it is part of
    the International Access Code provided.

    NOTICE OF NEWS CONFERENCE

    Members of the media are invited to attend a news conference scheduled
    for 11:00 a.m. eastern time today at the Hilton Toronto, 145 Richmond Street
    West, Toronto III Ballroom on the Convention Level. Participants can also join
    the conference by dialing:

    - Toronto - 416-405-9328
    - North American Toll Free - 1-800-387-6216, and
    - International - 800-7664-7664.

    A live audio webcast of the press conference can be accessed by visiting
    the Investors section of the MTS website (www.MTS.ca) or the Allstream website
    (www.Allstream.com). A replay of the press conference call will be available
    until midnight April 15, 2004 and can be accessed by dialing 416-695-5800 or
    800-408-3053 pass code 3022441. The audio webcast will be archived on the
    websites.

    International participants will need to dial the International Access
    Code normally used to reach North America prior to dialing the Global Toll
    Free number. We recommend that participants contact the long distance operator
    of the country they are in to obtain this code, since some countries have
    multiple International depending on the region they are in. It is important
    not to add a "1" in front of the Global Toll Free number unless it is part of
    the International Access Code provided.
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  2. #2
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    So, AT&T is completely done in Canada now. Interesting.

  3. #3
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    Originally posted by shaner
    So, AT&T is completely done in Canada now. Interesting.
    Whats more interesting is that Bell owns 21% of MTS, but they have just become direct competitors.

    Here is a timeline summary...

    -Bell buys 21% of MTS
    -MTS launches in West
    -Bell launches in West
    -Bell and MTS combine their western operations into Bell West. Bell owns 60%, MTS owns 40%.
    -MTS enacts a contract clause which forces Bell to buy 100% of Bell West
    -MTS uses those funds to buy Allstream and become a direct competitor with Bell

    Now Bell has to decide what to do with their diluted 21% share of MTS.

  4. #4
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    Yeah, I was just thinking of that too. I wonder if MTS will rebrand Allstream.

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    For me the question I'm asking is, doesn't Fido and Allstream have a partnership to deliver iFido accross Canada?
    mbourd25

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    The babies are coming back to it's parent.

    If you know you history, don't ask for an explanation, it's long.

  7. #7
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    Originally posted by rip
    The babies are coming back to it's parent.

    If you know you history, don't ask for an explanation, it's long.
    It's not that simple. MTS lacked infrastructure, and now they have more than they know what to do with ;-) A new facilities-based national backbone with POPs in the US! :-)
    Cheeri'o...
    Frankie...

    Please Note: I do not work for Bell. I also do not work for any wireless retail outlet.
    Do not ask me about promotions or offers from wireless providers.

  8. #8
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    Originally posted by rip
    The babies are coming back to it's parent.

    If you know you history, don't ask for an explanation, it's long.
    Huh?

    Allstream is whats left of AT&T Canada. MTS is a former provincial telco. They have no former relation and neither of them are former baby Bells.

    Perhaps you should explain

  9. #9
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    Originally posted by frankie5string
    It's not that simple. MTS lacked infrastructure, and now they have more than they know what to do with ;-) A new facilities-based national backbone with POPs in the US! :-)
    I only hope that MTS doesn't stick their fingers too deep into the pie and screw it up. MTS management doesn't know how to operate in a competitive marketplace outside of Manitoba as demonstrated by the failure of their past ventures.

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    Originally posted by Xirc
    I only hope that MTS doesn't stick their fingers too deep into the pie and screw it up. MTS management doesn't know how to operate in a competitive marketplace outside of Manitoba as demonstrated by the failure of their past ventures.
    I wouldn't be surprised if there was immediate infighting once all the t's are crossed and the i's are dotted... They are aquiring management from Allstream - so it's a bit of a waiting game to see which management team shakes the other up first ;-)

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    Originally posted by Xirc
    I only hope that MTS doesn't stick their fingers too deep into the pie and screw it up. MTS management doesn't know how to operate in a competitive marketplace outside of Manitoba as demonstrated by the failure of their past ventures.
    We will all have to wait and see on that one...

    Now, as a wholly-owned subsidiary of MTS, I believe Allstream will maintain its CLEC status in Canada.

    It's an advantageous situation for an ILEC to have CLEC presence nation-wide. It will be interesting to see what other services they will offer under the Allstream brand. Perhaps Allstream Wireless?

    Hmm.. now THAT'S interesting.

    :::

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    Originally posted by crAckchiLe
    It's an advantageous situation for an ILEC to have CLEC presence nation-wide. It will be interesting to see what other services they will offer under the Allstream brand. Perhaps Allstream Wireless?

    Hmm.. now THAT'S interesting.

    :::
    As part of the Bell Wireless Alliance, I beleive MTS and Bell have non-compete clauses which prevent each other from competing in the same markets. It will be interesting to see how MTS and Bell reshape their relationship.

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    zzzzzzzzzzzzzzzzz.....

    wha wha wha??? ....... o ya ...MTS bought AllSrteam........
    What is Understood, Need Not Be Discussed...."

  14. #14
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    Originally posted by Xirc
    As part of the Bell Wireless Alliance, I beleive MTS and Bell have non-compete clauses which prevent each other from competing in the same markets. It will be interesting to see how MTS and Bell reshape their relationship.
    That's to do with wireless. Allstream and Bell have been beating each other silly in the business landline business for a few years now.

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