Primus is one of Canada’s largest competitive telecom providers.Sebastien Coell/Getty Images/iStockphoto
Primus Telecommunications Canada Inc. is heading back to court next week hoping to win approval of its $44-million deal to sell to a U.S. company after resolving objections to the sale raised by one of its creditors and a rejected suitor.
In documents filed as part of Primus's creditor protection proceeding this month, the company revealed that fellow Canadian alternative telecom provider Comwave Networks Inc. was one of six potential buyers of all or part of Primus's operations.
After Primus selected another buyer, Comwave filed a lawsuit on Jan. 18, raising concerns about the sale process and alleging Primus used Comwave "as a stalking horse" to elicit a better offer. However, Comwave last week said in a separate court filing that it now plans to drop its case against Primus and will not oppose a motion on Feb. 23 for the court to approve Primus's sale.
U.S. private equity firm York Capital Management purchased Primus in 2013 for $129-million (U.S.), but its financial situation has deteriorated since then as it grappled with too much debt and declining revenue and profit margins. Primus has been unable to maintain certain debt-to-earnings ratios required under its secured loans and has been operating under "forbearance" agreements with its major lenders.
After canvassing options for financial restructuring and finding no solution, the company hired a financial adviser and began a formal sales process in September.
It ultimately selected Atlanta-based telecom provider Birch Communications Inc.'s offer to purchase all of Primus's Canadian and U.S. operations. On Jan. 19, the Ontario Superior Court in Toronto granted Primus protection under the Companies' Creditors Arrangement Act (CCAA) so it could complete the sale and continue operating while the deal was finalized.
Primus operates some of its own telecom facilities and also buys wholesale services – such as long-distance voice calling and Internet access – from major telephone and cable companies and resells them to its own retail customers. It has more than 200,000 residential customers and 23,000 small and medium-sized business clients in Canada and also has about 27,000 residential customers in the United States and Puerto Rico.
Comwave was interested in purchasing only Primus's Canadian operations and that transaction would have required Primus to line up one or more U.S. buyers for the non-Canadian assets. Primus said in a court filing that such an arrangement potentially could have offered "the highest value, but involved far more closing complexity and risks."
The company also said that Comwave's offer "contemplated the termination of over 220 employees." Primus has 502 employees in Canada and 28 in the United States and it said in court filings that Birch has advised that it plans to "offer employment to all or substantially all" of the company's employees.
Manulife Financial Corp., which holds some of Primus's subordinate debt, also objected to the sale process and argued it should have been conducted within a CCAA proceeding, rather than before Primus filed for protection.
A Jan. 25 letter from a lawyer for Manulife detailed its concern that the sales process was conducted with a view to ensuring only that Primus's debt to its senior, first-lien debt holders was repaid. Under the proposed sale to Birch, even Primus's first-ranking creditors will not be repaid in full.
But Manulife also withdrew its objection last week and said in a court filing that it would not oppose the motion to approve the sale.
Manulife, Comwave and Primus all declined to comment further or explain how the parties resolved their various disputes.
Primus is one of Canada's largest competitive telecom providers. Although the country's Internet and telephone market is dominated by the incumbent operators, there are hundreds of alternative players that buy access to those networks as a result of a regulatory regime established in the 1990s.