WHY BCE IS THE MOST LIKELY CANDIDATE TO TAKE OVER MANITOBA TELECOM SERVICES
It’s long been thought that when Manitoba Telecom Services Inc. sold its Allstream division, the remainder of the company would become a takeover target.
Now that the sale has finally become a reality, it puts the likes of BCE Inc., Rogers Communications Inc. and Telus Corp. into the mix as potential suitors.
However, Canaccord Genuity analyst Aravinda Galappatthige noted that Rogers can safely be ruled out. That’s because an acquisition of MTS would result in a combined 84 per- cent- share of the Manitoba wireless market.
He also thinks Telus is probably uninterested in MTS given its preference for higher- growth verticals such as health care.
That leaves BCE, which is considered the most likely buyer given its acquisitive past.
“Given BCE may well be the sole suitor, we see little reason for BCE to rush into an acquisition,” the analyst said in a report. “Consequently, our view is that while an MTS acquisition by BCE could become a reality over the longer run, there is little to suggest it may be a near- term event.”
Regardless of when such a deal could surface, there are a few things worthy of consideration.
For one, the transaction would reduce the number of players in the Manitoba wireless market to three from four, which is a regulatory hurdle that likely must be crossed.
However, the analyst pointed out that Industry Canada approved the sale of Mobilicity to Rogers, as long as its spectrum was spun out to Wind Mobile Canada.
“Hence, there is the possibility of a similar arrangement around an MTS sale,” he said.
Galappatthige also noted that any deal would probably require $ 50 million to $ 75 million in synergy savings in order to be immediately accretive for BCE.
Yet he questioned whether the high end of that savings figure could be achieved, given the pushback any future layoffs would encounter following MTS’ previously announced headcount cuts of six to eight per cent.
Finally, the price has to be attractive enough for BCE. With MTS shares trading higher on takeover speculation, it’s now trading at about 7.4x 2016 EV/ EBITDA. That compares to an average of 7.5x for BCE, Rogers and Telus.