MOBILICITY, WIND BACK IN MERGER TALKS
Ahead of deadline for wireless spectrum auction
Wind Mobile Corp. has been talking with Mobilicity about taking over the struggling carrier, the Financial Post has learned. Mobilicity, meanwhile, has also been devising a different route through its restructuring that would allow it to sell its spectrum licences to a major wireless player, despite Ottawa’s opposition.
Sources confirm the two companies restarted merger talks in recent weeks, trying to secure the framework for a deal before Industry Canada’s Jan. 30 deadline for applications to participate in the AWS-3 auction for wireless spectrum set aside by the federal government for new carriers.
“[The companies] have been spending the better part of the past few months trying to figure out how to get it done,” said a source familiar with discussion, who asked not to be named.
The stumbling block continues to be the price. Wind’s owners, led by founder Anthony Lacavera and West Face Capital Inc., a Toronto-based private equity group, have so far balked at what Mobilicity’s equity holders and creditors are seeking.
“Wind is never going to be in a position to pay Mobilicity the price it expects it could get from an incumbent,” said a source familiar with the negotiations who asked not to be named.
Mobilicity, which has been operating under court-supervised creditor protection since September 2013, is said to be seeking the kind of money Telus Corp. was willing to pay when it offered $350 million in May 2014. It was Telus’ third attempt to take over Mobilicity, but the Vancouver-based firm was forced once again to withdraw its bid after Ottawa opposed the buy, insisting the deal would hurt wireless competition.
That left Mobilicity without a solid bidder and its creditors, already owed about $200-million, at risk of significant losses.
The recent merger Wind/ Mobilicity merger discussions were halted after both companies filed their applications to bid on the AWS-3 spectrum auction and their $62-million deposits Jan. 30. That’s because an anti-collusion clause in the AWS-3 spectrum framework prohibits applicants and their affiliates from collaborating, discussing, or negotiating agreements with competitors until after provisional licence winners are announced March 6.
The two startups have had merger talks off and on before, dating back to 2009. Since then, Wind has grown to more than 800,000 subscribers, with the backing of a deep-pocketed consortium of investors who spent $285-million to help Mr. Lacavera recapitalize the company last fall.
Mobilicity remains substantially weaker, with fewer than 150,000 subscribers and a value of about $130-million, as it attempts to restructure under the Companies’ Creditors Arrangement Act. Its most valuable spectrum licences were obtained through special auction set-asides for non-incumbent wireless players, leaving Ottawa’s rules, again, as the major obstacle to reselling those licences to incumbents.
Court documents show Mobilicity’s creditors are looking at several restructuring options aimed at overcoming Ottawa’s roadblocks and selling Mobilicity’s assets. They include trying to resurrect the Telus offer and filing a motion with the court to have a judge allow the company to sell its spectrum to a large telecom player, such as BCE Inc., Rogers Communications Inc. or Telus, as part of its CCAA proceedings.
In letters exchanged last November between the lawyers representing the largest group of creditors and Mobilicity’s financial advisers, Canaccord Genuity, outline a list of possible restructuring alternatives, including filing a motion under Section 11.3 of the creditor protection act.
Essentially, Mobilicity is considering transferring or assigning the spectrum it owns to a buyer as part of an asset sale under court protection. An agreement would not become effective without court approval — and, more importantly, if Ottawa wanted to challenge the sale, the federal government would have to argue its opposition in court, rather than making political decision behind closed doors.
“We believe that a motion under section 11.3 of the CCAA would be successful and that a transaction with an incumbent could be achieved,” wrote Robert Chadwick, the lawyer representing Mobilicity’s ad hoc committee of note holders, who own about 67% of the first lien notes and 95% of the unsecured senior notes.
Not all Mobilicity’s creditors agree. Catalyst Capital Group Inc., which owns about $65 million of the first lien notes, vehemently opposes proposals that attempt an end-run around Ottawa’s policy on restricting the sale of spectrum reserved for startups to incumbents.
James Riley, managing director at Catalyst, expressed concern about the section 11.3 filing, citing “significant risks, costs, delays and uncertainties inherent” in such a motion.
Even if the tactic were successful, he wrote, “events have shown “no incumbent (including Telus) would be willing to purchase spectrum from Mobilicity with all of the attendant regulatory risks — so long as the current government remains in power.”
Catalyst also dismissed attempts to bring Telus back to the negotiating table as a “pipe dream.”
Lawyers representing creditors did not respond to calls and emails for comment. Canaccord Genuity declined to comment.