* MTS to sell Allstream business for C$520 mln
* MTS shares jump more than 5 percent in Toronto
* Deal could result in MTS becoming takeover target
By Alastair Sharp and Euan Rocha
TORONTO, May 24 Manitoba Telecom Services Inc
will sell its Allstream fiber optic network to a
company controlled by telecom tycoon Naguib Sawiris for C$520
million (US$503 million), a deal that signals the Egyptian
magnate is still keen on Canada.
Under an agreement announced on Friday, Accelero Capital
Holdings, which was founded by Sawiris and is stacked with
executives from telecom companies he owns or in which he is
invested, gets Allstream landline network and its 50,000
Investors cheered the deal, which marks a re-entry of sorts
for Sawiris into the Canadian market, sending MTS's stock up
more than 5 percent to C$33.93.
"Immediately it removes a couple of clouds from the stock,
one relating to Allstream and just how long it would take to
turn them around, and two, they can use the proceeds to help
fund their pension deficit," said Ryan Bushell, a portfolio
manager at Leon Frazer & Associates in Toronto, which manages
more than C$2 billion and is one of MTS's top shareholders.
The deal's value includes debt assumed by the buyer. MTS
expects its roughly C$405 million in proceeds to help it pay
around C$130 million into its pension plan and eliminate all
pension solvency funding until 2016.
The deal leaves MTS as a "pure-play" regional player and
some investors think this makes it an attractive takeover target
for larger companies such as BCE Inc or Telus Corp
"This transaction makes MTS a stronger, more focused and
more valuable company," Chief Executive Pierre Blouin said,
adding that free cash flow would support its dividend policy.
NEW CANADIAN GAMBLE
In a previous foray into Canada, Sawiris's Orascom Telecom
backed upstart Wind Mobile, which launched a wireless
service in 2009 that aggressively challenged the pricing plans
of Canada's three dominant telecom players: Bell, Telus and
Rogers Communications Inc.
Russia-focused Vimpelcom later bought Orascom for $6
billion but is still awaiting regulatory approval to fold in
Orascom's Canadian assets. It is widely expected that Vimpelcom
will sell Wind Mobile as it has retained UBS to seek possible
Sawiris and Wind Mobile Chief Executive Anthony Lacavera are
in talks to buy back Wind from Vimpelcom, a source with
knowledge of the talks said on Friday. Such a deal could allow
them to combine Allstream's business customers and extensive
infrastructure with Wind's consumer wireless base.
A separate source close to the Allstream deal said, however,
that the asset is independent of Accelero's ambitions for Wind
Mobile. The source said talks between Accelero and Wind's
current owners have not advanced significantly.
"In our view, this transaction increases the probability
that Accelero will look to acquire Wind Mobile given the likely
synergies on backhaul and a renewed commitment to Canada," RBC
Capital Markets analyst Drew McReynolds in a note to clients.
The return of Sawiris to the Canadian market reverses a
recent trend that has seen the dominant domestic players buying
up assets and undermining the Canadian government's attempts to
increase competition in the sector.
"This investment reflects Accelero's long-term commitment to
the Canadian telecommunications market, and our belief in the
opportunity that exists to provide capital to enhance the
competitive landscape in Canada," Sawiris said of the Allstream
deal in a statement.
The federal government has said it wants four telecom
competitors in each of Canada's regions.
Wind and smaller rivals such as Mobilicity have so far
struggled to build profitable businesses in Canada, a factor
that has forced them to explore alternatives.
Telus, Canada's No. 2 wireless operator by subscribers,
earlier this month agreed to buy Mobilicity, arguing that the
deal would save the upstart from bankruptcy.
BMO Capital Markets was Accelero's financial adviser and
Torys LLP served as legal counsel. CIBC World Markets and Morgan
Stanley acted as financial advisers for MTS and Stikeman Elliott
acted as legal counsel. The transaction is expected to close in
the second half of the year.