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.
About MTS
MTS is Manitoba’s preeminent, full-service telecommunications company.
Seamlessly blending innovative solutions and world-class technology, MTS
connects its customers to the world. Qunara Inc., MTS’s eCommerce, eBusiness
and Internet Data Centre subsidiary, provides business solutions across North
America. MTS’s common shares are listed on The Toronto Stock Exchange (trading
symbol: MBT). Its web site is located at www MTS.ca.
This news release contains forward-looking statements and there are risks
that actual results may differ materially from those contemplated by these
forward-looking statements. Additional information on these risks can be found
in the Company’s filings with the Canadian securities commissions. MTS
disclaims any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise. The MTS Board of Directors has reviewed this news release.
About Allstream
Allstream is a leading communications solutions provider with a
world-class portfolio of Connectivity, Infrastructure Management and IT
Services. Focused on the Business market, Allstream collaborates with
customers to create tailored solutions that meet their unique needs and help
them compete more effectively. Spanning more than 18,800 kilometres, Allstream
has an extensive broadband fibre-optic network and the greatest reach of any
competitive communications solutions provider in Canada, and provides
international connections through strategic partnerships and interconnection
agreements with other international service providers. Allstream is a public
company with its stock traded on the Toronto Stock Exchange under the symbols
ALR.A and ALR.B and the NASDAQ National Market system under the symbols ALLSA
and ALLSB. Visit Allstream’s website, www.Allstream.com for more information.
Note to Allstream Investors
This news release includes statements about expected future events and/or
financial results that are forward-looking in nature and subject to risks and
uncertainties. For those statements, we claim the protection of the safe
harbor for forward-looking statements provisions contained in the United
States Private Securities Litigation Reform Act of 1995. The Company cautions
that actual performance will be affected by a number of factors, many of which
are beyond the Company’s control, and that future events and results may vary
substantially from what the Company currently foresees. Discussion of the
various factors that may affect future results is contained on page 1 of the
Company’s Annual Information Form dated May 2, 2003, which is filed with the
Securities and Exchange Commission, the Ontario Securities Commission, and
SEDAR.
