It’s always been thought that when Manitoba Telecom Services Inc. sold its Allstream division, the remainder of the company would be a takeover target.
Now the sale has finally be realized, it puts the kind 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 eliminated. That’s because an purchase of MTS would result in a combined 84 per-cent-share of the Manitoba wireless market.
He also thinks Telus is probably bored with 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 have seen little reason for BCE to rush into an acquisition,” the analyst said in a report. “Consequently, our view is the fact that while an MTS acquisition by BCE turn into a reality within the longer run, there is little to suggest it might be a near-term event.”
Regardless of when such a deal could surface, there are a few things worth consideration.
For one, the transaction would reduce the amount of players within the Manitoba wireless sell to three from four, that is a regulatory hurdle that must be crossed.
The Conservative government was in favour more wireless competition by means of a fourth national wireless player. Galappatthige noted that meant it was less likely it would have supported consolidation inside a market such as Manitoba.
The change in government could produce a new position, although investors haven’t heard anything around the wireless file thus far.
However, the analyst noticed 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 chance of a similar arrangement around an MTS sale,” he explained.
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 might be achieved, because of the break the rules any future layoffs would encounter following MTS’ previously announced headcount cuts of 6 to 8 per cent.
Finally, the cost has to be attractive enough for BCE. With MTS shares trading higher on takeover speculation, it’s now trading at approximately 7.4x 2016 EV/EBITDA. That comes even close to an average of 7.5x for BCE, Rogers and Telus.