MTS to acquire Allstream, creating powerful national provider
March 18 2004 - 7:32AM
PR Newswire (US)
MTS to acquire Allstream, creating powerful national provider -
Complementary fit creates formidable national provider with strong
growth platform - Immediately accretive; expected annual synergies
of $120 million increase value creation for shareholders -
Shareholders to benefit from an intended substantial issuer bid of
approximately $800 million - Annual dividend expected to increase
by 120% to $2.20 per share WINNIPEG and TORONTO, March 18
/PRNewswire-FirstCall/ -- 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 andgrowing 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. Underpinningthe 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. Inaddition 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. Itis
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 umbrellaof 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
willevaluate 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 (http://www.mts.ca/) or the Allstream website
(http://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 (http://www.mts.ca/) or the
Allstream website (http://www.allstream.com/). A replay of the
press conference call will beavailable 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 onthe 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 Managementand 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, http://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 arebeyond 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. To view the MTS/Allstream fact sheet, please
visit: http://files.newswire.ca/337/ProjectFactSheet.pdf
---------------------------- (1) Earnings per share plus deferred
taxes. DATASOURCE: Allstream Inc. CONTACT: please contact: MTS:
Investors: Brad Woods, Director Investor Relations, (204) 941-8283,
; Media: Melanie Lee-Lockhart, Manager Corporate Communications,
(204) 941-1043, ; Allstream: Investors: Brock Robertson, Senior
Vice President Investor Relations & Treasury, (416) 345-3125, ;
Dan Coombes, Director Investor Relations, (416) 345-2326, ; Media:
May Chong, Director Corporate Communications,(416) 345-2342, ; MTS
Website: http://www.mts.ca/; Allstream Website:
http://www.allstream.com/
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