Telus-Mobilicity deal still faces hurdles

Mobilicity's bond holders are hedging their bets by giving their blessing to a $380-million acquisition deal by Telus Corp., while postponing a separate vote on a back-up plan should the federal government end up killing the controversial deal.

The Vaughan, Ont.-based carrier, which is legally known as Data & Audio-Visual Enterprises Holdings Inc., said more than two-thirds of its debt holders approved the Telus acquisition at a meeting in Toronto on Thursday, but declined to disclose detailed voting results.

The struggling upstart carrier also unexpectedly delayed a separate vote on a contingency recapitalization plan, which would be used to repair its balance sheet should the sale fall through. It is unclear when that vote would be held, given that certain stakeholders are keen to see whether the Telus deal passes muster with federal regulators.

A hearing for court approval is scheduled for next Tuesday, but the sale still faces significant hurdles in Ottawa. Industry Minister Christian Paradis has yet to rule on whether big carriers like Telus will be allowed to acquire new-entrant wireless licences once a ban expires next year. Moreover, he has remained mum on whether he would be willing to break those rules in Mobilicity's case by allowing for an expedited transfer of assets to Telus, given the small carrier's mounting financial woes.

"We are pleased to have received the support of our debtholders for the Telus Acquisition Plan," stated Stewart Lyons, Mobilicity's president and chief operating officer. "This is a significant step toward final approval of the Plan through which the business, combined with the financial strength of Telus, can be continued in a way that will benefit our customers and employees."

Although the alternative recapitalization plan remains an option for Mobilicity, he stressed the company is "focused on completing the Telus acquisition as it is in the best interests of all our stakeholders," a position that was echoed by Telus.

"Today's positive vote is an important step on the road to allowing Telus to sustain service for Mobilicity's quarter-million customers and preserve the jobs of their 150 employees without a disruption caused by their current financial challenges," stated David Fuller, Telus's chief marketing officer.

Last week, Mobilicity announced a deal to be acquired by Vancouver-based Telus, Canada's second-largest wireless carrier, for $380-million. That purchase price is subject to a working capital adjustment, the companies said, noting they've kept the government "fully informed" since acquisition talks began earlier this year. Still, approval of the deal was bound to fuel a further backlash from consumer groups.

Late Wednesday night, Mobilicity announced certain revisions to its Telus sale plan after consulting stakeholders. Still, the cash-strapped carrier declined to say whether one of its major bond holders, Catalyst Capital Group Inc., tried to thwart the deal.

"It wouldn't be appropriate to disclose how different stakeholders voted, however we can tell you the acquisition plan received approval from the vast majority of debtholders (more than the requisite 2/3 of votes cast)," Mr. Lyons said in an e-mailed statement.

Catalyst, which owns roughly 30 per cent of Mobilicity's senior secured notes, had been scheduled to square off against the small carrier in an Ontario court on Friday regarding a separate matter relating to the company's finances, but that hearing was postponed. The private-equity firm is trying to nix a $75-million lending agreement that gave Mobilicity badly needed breathing room earlier this year.