Burdened by a big pension deficit at MTS Allstream, parent company Manitoba Telecom Services Inc. is considering issuing new shares to help close the gap.
After the federal government blocked Allstream's sale to Accelero, the company can no longer rely on using $170-million of the proceeds to help plug its pension hole. And even though Allstream is being integrated back into Manitoba Telecom Services, management knows that its solvency problem will not magically disappear.
In an interview, chief executive officer Pierre Blouin stressed that Allstream is being restructured, and that the company's IP – internet protocol – unit is growing. But he also acknowledged that the company's cash flow can only go cover so much. "The one element that it cannot fully support, at least not right now, at current interest rate levels, is our solvency," he said.
For that reason, the company is considering all of its options, and an equity issue just happens to be high on the list. However, Mr. Blouin said he could not speculate on the size of any potential deal because it will depend on any interest rates moves in the coming months. If rates shoot higher – and that's a big 'if' – the pension hole would shrink, meaning he wouldn't need to raise as much money.
When asked if Allstream will restart the auction process to find another buyer, Mr. Blouin stayed mum. The company is "now focused on operating Allstream and MTS and bringing back Allstream's performance," he said, adding that "we expect a quick turnaround for Allstream."
On the company's quarterly conference call Thursday, Mr. Blouin also said that any ideas of relaunching the auction "would be pure speculation right now."
However, he certainly kept to a tight script, consistently emphasizing just how quickly Allstream is turning itself around. The IP arm, which installs high speed fibre pipes in office buildings, now accounts for 37 per cent of its revenues, and the company hopes that figure will jump to 50 per cent in the next year or two.
Allstream also announced that it launched a restructuring program in early November to reduce headcount and save costs – something that will help to boost its bottom line.
Rising revenues and shrinking costs would certainly make Allstream look prettier in any future auction.