Manitoba Telecom Services Inc. is launching a strategic review of its Allstream division – the strongest signal yet that the telecommunications company is growing anxious to pursue a sale.
Sources say Allstream has been unofficially in play for months, but Winnipeg-based MTS said late Thursday it is embarking on a formal review of its options for the division.
In doing so, the company pointed to Ottawa’s recent easing of foreign investment restrictions for small telecom companies, a move that telegraphs MTS’s eagerness to drum up interest among international buyers after previous attempts to find a Canadian-based buyer fell apart.
“With a clear strategy, strong traction in the growing market for IP services, and seven consecutive quarters of year-over-year EBITDA growth, Allstream is the strongest it has been in years,” said chief executive officer Pierre Blouin in a statement. “For this reason, it is important to understand that this process is wide-ranging and does not assume that any significant change is necessary or desirable.”
In June, The Globe and Mail reported that MTS had hired U.S. investment bank Morgan Stanley to work with its Canadian-based financial advisers, CIBC World Markets, to expand, what was then, a more informal search for a potential foreign buyer.
MTS confirmed on Thursday that it has hired both investment banks, adding that its strategic review would occur over the course of the coming year.
“The company does not intend to disclose any developments with respect to this strategic review process until such time as the Board approves a particular course of action or otherwise determines that further disclosure is appropriate or required,” MTS said in a statement. “There is no assurance or expectation that any changes will be made as a result of this process.”
MTS acquired Allstream, formerly known as AT&T Canada, in a deal worth $1.7-billion in 2004.
Allstream, which offers telecom services to medium-sized and large Canadian businesses, has a network that includes roughly 30,000 kilometres of fibre concentrated in major Canadian cities. Some analysts suggested it could fetch up to $900-million.
While there has been some speculation that large U.S. telcos could be interested, AT&T is considered an unlikely bidder.
Still, it remains unclear whether the division will find a buyer. The last time MTS conducted an extensive strategic review was in 2006.
Over the years, a number of Canadian companies have kicked the tires at Allstream, including Globalive Wireless Management Corp., Rogers Communications Inc., Telus Corp., BCE Inc. and Shaw Communications Inc. In addition to disagreements over price, those companies were also wary about purchasing the company’s legacy telecom assets, sources say.
If the strategic review fails to culminate in a sale, other options could include strategic partnerships or generating new risk capital. But Allstream faces some competition in attracting foreign interest. Earlier this month, TeraGo Inc. also launched a strategic review suggesting it, too, hopes to take advantage of new foreign investment rules that allow for 100-per-cent foreign ownership of telcos with a market share of 10 per cent or less.