Government of Canada Rejects MTS Sale of Allstream to Accelero Capital Holdings

Stock symbol: MBT

TORONTO and WINNIPEG, Oct. 7, 2013 /CNW/ - Manitoba Telecom Services Inc. (TSX:MBT) ("MTS Allstream" or the "Company") announced today that the Federal Government has rejected the proposed acquisition of the Company's Allstream division by Accelero Capital Holdings S.a.r.l. ("Accelero").

MTS Allstream is extremely surprised and disappointed by this decision. MTS Allstream and Accelero have responded openly and constructively to Industry Canada's requests for information in the 136 days since the transaction was announced, and Accelero has proposed far-reaching, comprehensive and binding undertakings to the Canadian government, including a commitment to invest $300 million over three years to pursue Allstream's capital plans. The government has nevertheless now made the determination to reject the transaction due to unspecified national security concerns, and has rejected an offer from MTS and Accelero to take whatever actions are necessary to address the government's concerns.

MTS Allstream and Accelero continue to believe this transaction is to Canada's net benefit and to the best of our knowledge would not be injurious to national security. Specifically, the companies believe the transaction would have, among other things:

  • contributed to increased competition in Canada's telecommunications sector;
  • sent a strong message that Canada's telecommunications sector is, in fact, open to foreign investment;
  • enabled Allstream to accelerate the introduction of innovative products to increase the productivity of Canadian businesses;
  • provided MTS the capital necessary to increase its investment in Manitoba's telecom infrastructure, such as fibre-to-the-home for rural Manitobans; and
  • resulted in $165 million of funding for MTS pension plans benefitting more than 10,000 Plan members.

In deciding to proceed with this transaction, MTS Allstream was heavily influenced by the fact that Accelero's principals are a well-known and experienced group of telecom executives who have previously been permitted to invest in and operate telecom assets in a number of countries around the world, including Canada (through Wind Canada) and several of its trading partners. Of particular note, the same group of principals led the investment of approximately $1 billion in Canada's telecommunications sector, beginning with the 2008 AWS spectrum auction. The Federal government's past active support of Accelero's principals played a significant role in MTS Allstream's decision to sell to Accelero following the Company's strategic review process. The Company was also heavily influenced by the fact that the proposed transaction is entirely consistent with recent changes in Federal policy aimed at increasing foreign direct investment in Canada's telecom sector.

"We pursued this transaction, with Accelero as our partner, in direct response to the Federal Government's stated policy objectives of increasing foreign investment and driving greater competition in Canada's telecommunications sector, so this result is very difficult to understand or accept," said MTS Allstream CEO, Pierre Blouin. "We are fortunate that our two businesses, MTS and Allstream, have strong market positions and outstanding employees who are committed to meeting the needs of our customers throughout Manitoba and at small, medium and enterprise-scale organizations across Canada."

MTS Allstream and Accelero, with advice from their respective legal and financial advisors, are reviewing their options.

2013 Outlook

As a result of the Allstream sale transaction not being approved, the division will once again be reported as part of MTS Allstream's consolidated results.  The consolidated results will be impacted by approximately $35 million due primarily to a combination of non-recoverable, transaction-related expenses and restructuring costs incurred in contemplation of the transaction.  Excluding the impact of the additional transaction and restructuring costs, results were otherwise expected to be near the lower end of the original guidance ranges primarily due to the disruptive impact of a long regulatory process on Allstream's business performance.  Our MTS subsidiary, which has not been impacted, continues to generate increased cash flow and is performing in line with expectations.  The Outlook for 2013 is as follows:

2013 Financial Outlook

       
(in millions $, except earnings per share and
capital expenditures)
Original
2013 Outlook
  2013 Outlook
Revenues 1,630 to 1,730   No change
EBITDA 590 to 630   540 to 570
EPS1 $1.75 to $2.15   $1.15 to $1.45
Capital expenditures/revenues 17% to 19%   No change
Free cash flow2 160 to 200   110 to 140
1 Exludes IFRS mandated write-down of Allstream's fixed assets that was based on expected Allstream sale transaction amounts.
2 Free cash flow excludes the $70 million prefunded MTS pension solvency payment. Allstream's 2013 pension solvency funding requirement will be met using letters of credit.


MTS Allstream expects consolidated revenues in 2013 to be at the low end of the original range.  In addition to the impact of the strategic review and long regulatory approval process, revenues have been impacted by higher than expected legacy churn from exit activities, as well as slower than expected installation of a large contract won late in 2012.

EBITDA was trending towards the lower end of the original range primarily due to Allstream performance which was impacted by the uncertainties of the strategic review and subsequent regulatory approval process, and is now expected to be below original guidance due to additional Allstream transaction-related expenses and restructuring costs.   The restructuring was implemented as part of the agreement with the acquirer.  The annual benefits associated with this restructuring will be reflected in the Allstream 2014 plan.

The expected EPS range adjustments are attributable to the tax effected changes in EBITDA, along with higher than anticipated amortization expense.

The Company has managed capital spending in line with lower revenues and other costs so that total capital spending is now expected to be below the original mid-point of the capital intensity range.

The free cash flow range is lower due to changes in EBITDA offset by lower expected capital expenditures.   Excluding the extra $35 million restructuring and one-time transaction costs noted above, this new range would be approximately $145 million to $175 million.

For a complete discussion of the material risks and assumptions associated with this outlook, please refer to our 2012 annual MD&A.  MTS Allstream plans to issue its Q3 results on November 7, 2013.

MTS Allstream remains a strong company with a solid balance sheet. MTS cash flows have funded the dividend for the past few years and the Company sees increasing MTS cash flows in 2013 as announced in our 2013 outlook issued last February and in our Q2 results. Both divisions have leading positions in their respective markets. MTS continues to deliver strong performance as Manitoba's leading telecom provider. Allstream is positioned to continue executing the strategy that delivered 10 consecutive quarters of improving EBITDA prior to the announced sale to Accelero on May 24, 2013.

Forward-looking Statements Disclaimer
This news release includes forward-looking statements and information (collectively, the "statements") about the Company's corporate direction, business opportunities, operations, financial objectives and future financial results and performance that are subject to risks, uncertainties and assumptions. As a consequence, actual results in the future may differ materially from any conclusion, forecast or projection in such forward-looking statements. Therefore, forward-looking statements should be considered carefully and undue reliance should not be placed on them. Examples of statements that constitute forward-looking information may be identified by words such as "believe", "expect", "project", "should", "anticipate", "could", "target", "forecast", "intend", "plan", "outlook", "see", "set", "pending", and other similar terms. 

Factors that could cause anticipated opportunities and actual results to differ materially include, but are not limited to, matters identified in the "Material assumptions" section, and the "Risks and uncertainties" section, in the Company's 2012 Annual MD&A and 2012 Annual Information Form, all of which are available on SEDAR at www.sedar.com

Please note that forward-looking statements reflect Management's expectations as at the date hereof. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

About Manitoba Telecom Services Inc. (MTS Allstream)
MTS Allstream is one of Canada's leading national communication solutions companies, providing innovative communications for the way Canadians live and work today. The company has more than 100 years of experience, with 5,500 employees across Canada. MTS Allstream's business is dynamic and consists of two operating divisions.  In Manitoba, MTS is the leading full-service telecommunications provider for residential and business customers. MTS's suite of services include the latest in wireless technology, broadband services, IPTV, voice services, home security, and an extensive range of business solutions. Across Canada, Allstream is a leader in IP communications and is the only national provider that focuses exclusively on the business telecommunications market. MTS Allstream has nearly two million customer connections spanning business customers across Canada and residential consumers throughout the province of Manitoba. The Company's extensive national fibre optic network spans more than 30,000 kilometres. MTS Allstream has spent 12 consecutive years on the Jantzi Social Index for leadership in social responsibility and is the recipient of the 2011 Governance Gavel Award from the Canadian Coalition for Good Governance, recognizing clear and effective public disclosure and leading governance practices. MTS Allstream's common shares are listed on the TSX (trading symbol: MBT).  Customers, stakeholders and investors who want to learn more about MTS Allstream are encouraged to visit: www.mtsallstream.com.  For more information about MTS's products and services, please visit www.mts.ca. For more information about Allstream's products and services, please visit www.allstream.com.

 

SOURCE MTS Allstream

For further information:

Media:
Selena Hinds
Corporate Communications
204-941-8576
media.relations@mtsallstream.com

Investors:
Paul Peters
Investor Relations
204-941-6178
investor.relations@mtsallstream.com