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Press release from CNW Group

MTS concludes strategic review process with agreement to sell Allstream to Accelero Capital in transaction valued at $520 million

Friday, May 24, 2013

MTS concludes strategic review process with agreement to sell Allstream to Accelero Capital in transaction valued at $520 million

08:00 EDT Friday, May 24, 2013

Stock symbol: MBT

MTS investment community conference call at 9:30 am ET today

MTS media conference call at 10:45 am ET

TORONTO AND WINNIPEG, May 24, 2013 /CNW/ - Manitoba Telecom Services Inc. (TSX: MBT) (the "Company", including its two operating subsidiaries "MTS" and "Allstream") today announced the conclusion of the wide-ranging strategic review to consider a full range of alternatives to enhance Allstream's growing competitiveness and improve the long-term position of the Company's stakeholders.

Following a comprehensive auction process and a review of other strategic alternatives, the Company today announced that it has signed a binding agreement to sell its Allstream business to Accelero Capital Holdings S.ὰ r.l. Group ("Accelero"), an investment and management group focused on telecommunication, digital media and technology in a transaction that values Allstream at $520 million, subject to certain customary adjustments, including assumed debt obligations and normalized working capital, as well as certain pension related obligations as described below. The transaction has been approved by the MTS Board of Directors and is expected to close in the second half of 2013, subject to receipt of Investment Canada approval and customary closing conditions.

"This transaction is the successful culmination of a diligent process to determine the best way to create shareholder value and drive strong, competitive and sustainable futures for both MTS and Allstream," said David Leith, Chair of the Board of Directors. "We believe this transaction represents attractive value for Allstream, is in the best interests of the Company, its customers, employees and business partners, and that it will increase the level of investment and competition in Manitoba and across the Canadian business market."

Pierre Blouin, Chief Executive Officer, said, "This transaction makes MTS a stronger, more focused and more valuable company. MTS goes forward as a pure-play telecom with a strong consumer franchise and significant free cash flow to support our dividend. We will also have sufficient capital to invest in wireless spectrum and to continue bringing fibre-to-the-home, 4G LTE wireless technology and other products and services to more communities across Manitoba, further solidifying our position as the undisputed market leader in the province."

Mr. Blouin noted that the Company's dividend is currently supported only by the cash flows of its MTS division, and that capex is expected to stay at 2013 levels over the next few years. MTS will retain all of the Company's valuable tax assets, extending the period during which the Company will not incur cash taxes.

Mr. Blouin added, "This transaction also enables Allstream to accelerate its strategy towards achieving long-term sustainable growth. Accelero brings access to capital, telecom expertise and intimate knowledge of the Canadian marketplace. We have confidence that Accelero and Allstream's management will together succeed in realizing Allstream's full potential. This is a very positive development for Allstream employees, customers, business partners, and for increased competition across the Canadian enterprise market."

Accelero is an investment and management group focused on telecommunication, digital media and technology. Accelero's team has a strong track record in strategic, operational and financial management in Canada and around the globe. Naguib Sawiris, Accelero's Non-Executive Chairman and Co-Founder, is a renowned telecom entrepreneur who has overseen more than $1 billion of investment in the Canadian telecommunications market, contributing to the emergence of independent wireless competition in Canada.

Transaction details and planned use of proceeds
After closing costs, MTS expects to realize net proceeds of approximately $405 million. Out of these proceeds, the Company expects to contribute an additional $130 million into the MTS pension plan, and to repay $70 million in short-term indebtedness incurred in February 2013 to pre-fund the Company's pension obligations. The Company believes these prepayments into the Company's pension plans should eliminate all pension solvency funding until 2016, assuming no change in long-term interest rates. After giving effect to these contributions, the MTS Pension Plan's solvency funding ratio will be approximately 85%. Assuming an approximate 1% increase in long-term interest rates by 2016, the Company would have no further cash solvency funding requirements for either the MTS or Allstream plans. MTS will determine its planned use of the remaining transaction proceeds upon the close.

In addition, and as part of this transaction, MTS has agreed to retain the pension obligations, and related pension plan assets, in respect of retirees and other former employees of Allstream under Allstream's current defined benefit pension plans. Allstream will retain such plans in respect of current employees. MTS has also agreed to reimburse Allstream for the solvency funding payments that may become payable in respect of employees of Allstream as they relate to pre-closing service (i.e. as determined by the employee's years of service and salary at the time of closing). These are existing liabilities of the Company, and will not be increased as a result of this transaction.

MTS estimates the net present value of its remaining obligations to these Allstream pension plans at approximately $87 million, to be incurred over a period of five to seven years. MTS expects to deposit $40 million into these Allstream pension plans at the close of this transaction, after which it expects no further solvency funding requirements until 2016.

The completion of certain of these arrangements will be subject to the approval of the Office of the Superintendent of Financial Institutions (OSFI).

The transaction will not result in any changes to the pension plans for current MTS employees and retirees; they will continue to participate in their respective MTS pension plans, which will continue to be funded by the Company and are not impacted by this transaction, other than the expectation that they will be further pre-funded with a portion of the transaction's proceeds.

As of January 1, 2013, the total solvency deficit in respect of retirees and former employees under the current Allstream pension plans was approximately $116 million and the total solvency deficit in respect of current employees was approximately $52 million. This is in addition to $42 million of existing letters of credit. The estimated net present value of these pension payment obligations of approximately $87 million is based upon current market conditions, historical rates of return within the Allstream pension plans, the capturing of tax deductions associated with such payments, and the spreading of such payments over a period of five to seven years. The actual amounts of any such payments over time may vary based on interest rates and rates of return on the assets of such plans.

Accelero has paid a deposit of $55 million to Computershare Trust Company of Canada, which will hold the funds in escrow. In certain situations, this deposit would be paid in full to MTS. At closing, the deposit will be credited towards the purchase price.

MTS 2013 financial impact and outlook
By closing, the Company expects to record a non-cash, post-tax loss on the sale of approximately $50 million, a portion of which will be recognized in the Company's 2013 second quarter results. Based on the estimated net proceeds, MTS expects to have realized a return on investment from its 2004 acquisition of Allstream of negative 1%. This takes into account the $300 million of cash Allstream had on its balance sheet at the time the acquisition, the realized value of approximately $3 billion of Allstream tax losses, as well as the cash generated for the Company by Allstream over the period of the Company's ownership.

The Company expects to report its Allstream operations as discontinued operations beginning in the second quarter 2013 until the transaction closes. This means that the revenue and expenses relating to Allstream will no longer be reflected in the Company's financial results. The Company currently expects that the component of its 2013 financial outlook applicable to MTS will continue to be in line with forecasts.

To provide further details in respect of the foregoing, the Company intends to file on SEDAR a material change report, along with a redacted copy of the Sale and Purchase Agreement.

Advisors and legal counsel
CIBC World Markets and Morgan Stanley acted as financial advisors to the Company. Each provided its opinion to the Board of Directors that the consideration to be received in connection with this transaction is fair from a financial point of view to the Company. Stikeman Elliott acted as legal counsel to the Company.

Conference call details
For investors:
The Company will host a conference call for the investment community today, May 24, 2013, at 9:30 am Eastern Time. Participants include Pierre Blouin, Chief Executive Officer and Wayne Demkey, Chief Financial Officer.

To participate, please dial toll-free 1-888-231-8191 or 647-427-7450. A replay will be available by dialing 1-855-859-2056 and entering passcode 76105406.

Investors, media and the public are invited to participate on a listen-only basis by logging into the live audio webcast of the conference call on our website (www.mtsallstream.com) or by entering http://event.on24.com/r.htm?e=625256&s=1&k=E5110E1A84CDEE97B1C206B6ACE9CC4A. A replay of the conference call will be available on our website for one year.

For media:
The Company will host a conference call for media today at 10:45 am Eastern Time. To participate, please dial toll-free 1-888-231-8191 or 647-427-7450. A replay will be available by dialing 1-855-859-2056 and entering passcode 76142875.

Investors, media and the public are invited to participate on a listen-only basis by logging into the live audio webcast of the conference call on our website (www.mtsallstream.com) or by entering http://event.on24.com/r.htm?e=625259&s=1&k=8D45915CD5ACBE2FEA9ED718019B9CC7. A replay of the conference call will be available on our website for one year.

Forward-looking statements disclaimer
This news release includes forward-looking statements and information (collectively, "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. In addition, many of the assumptions related to the Company's pension plans are dependent on prevailing interest rates, plan returns and actuarial liabilities. 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 this news release and in the Company's 2012 annual MD&A and 2013 first-quarter MD&A, which is available on our website at www.mts.ca/investors and 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. This news release and the financial information contained herein have been reviewed by the Company's Audit Committee and approved by the Company's Board of Directors.

About Manitoba Telecom Services Inc.
MTS is one of Canada's leading communication solutions companies, providing innovative communications for the way Canadians live and work today. 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. MTS 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's common shares are listed on the TSX (trading symbol: MBT). Customers, stakeholders and investors who want to learn more about MTS are encouraged to visit www.mtsallstream.com.

About Accelero Capital
Accelero is an investment and management group focused on telecommunication, digital media and technology. Accelero's team has a strong track record in strategic, operational and financial management. Accelero was established by former Orascom Telecom, Wind Telecom and VimpelCom executives: Ossama Bessada, former CEO of Wind Italy and former Head of Europe and North America Business Unit of VimpelCom; Khaled Bichara, former President and Chief Operating Officer of VimpelCom and former Group Chief Executive Officer of Orascom Telecom and Wind Telecom; and Aldo Mareuse, former Group Chief Financial Officer of Orascom Telecom and Wind Telecom. Accelero is backed by Naguib Sawiris, a renowned global telecom entrepreneur. The Accelero team leverages its expertise and sector know-how to identify high-growth assets and assets with turnaround potential.
www.accelerocapital.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

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