Wind Mobile has reached a deal that will give it the financial backing it needs to become a viable fourth player in Canada's wireless industry.
The company's Canadian founder is set to buy out Wind's foreign owner and recapitalize the wireless carrier with the backing of several financial players.
The deal, announced early Tuesday morning, should bring welcome capital investment to the company, which has made subscriber gains this year but must make much-needed improvements to its network.
It will also bring foreign backer VimpelCom Ltd.'s foray into the Canadian wireless market to an end after a failed attempt to gain full control of the company and writing off $1.5-billion of investments in the carrier.
The deal will see Globalive Capital, an investment company led by Wind's founder Anthony Lacavera, acquire all of VimpelCom's direct and indirect debt and equity interests in the Canadian company. The transaction will require regulatory approvals.
"With stable, long-term ownership and secure financing, Wind Mobile is moving into an exciting new phase," Mr. Lacavera said in a release. "Wind Mobile is now poised to continue to bring True Mobile Freedom to Canadians for many years to come."
Investors in the new structure include Canadian hedge fund West Face Capital and California-based private equity firm Tennenbaum Capital Partners and LG Capital Investors.
Most of the investors are Canadian, with Serruya Private Equity and Novus Wireless Communications rounding out the consortium. VimpelCom said in a statement it is selling its interest in the Canadian company for approximately $135-million and will also be released from debt obligations of Wind Canada as part of the transaction. Sources say the total value is worth closer to $300-million, with slightly more than half of that due to the consortium of investors assuming Wind's debt.
The federal government has encouraged such a transaction through a policy designed to favour investment in startup wireless carriers, such as blocking their sale to the incumbents, announcing new spectrum auctions with favourable rules and legislating lower wholesale roaming rates on an interim basis.
"The federal government's delivery on its promise to create the conditions for viable long-term wireless competition has not gone unnoticed by the investment community," Greg Boland, president and chief executive officer of West Face Capital said in a release. "We and our partners are pleased to invest in this transaction and we are excited by the future of Wind Mobile."
Analysts say the deal would show the government's efforts are working, but would still pose little serious threat to Rogers Communications Inc., Telus Corp. and BCE Inc. Wind operates in major urban centres in Ontario, British Columbia and Alberta, and with 750,000 subscribers, it is Canada's fourth-largest wireless carrier. It still trails well behind the Big Three incumbents, however, which between them have about 25 million customers.
"The competitive impact on wireless incumbents, while negative, is manageable," RBC Dominion Securities Inc. analyst Drew McReynolds said Monday.
Jake Enwright, press secretary for Industry Minister James Moore, said Monday, "While we do not comment on the business transactions of individual companies, our Government has been very clear about our policies to encourage greater competition and investment in the wireless sector. More competition invariably leads to more choice, lower prices, and better services for Canadian wireless consumers."
Amsterdam-based VimpelCom owns a majority of Wind's shares but Mr. Lacavera still controls two-thirds of the voting shares and has about a 35-per-cent economic interest in the company.
Wind had a number of potential suitors over the past year and a half, but as they have fallen by the wayside, the price VimpelCom could demand has steadily come down. U.S. carrier Verizon Communications Inc. had a look, going so far as to table a preliminary offer said to be $700-million.
Later came private equity investors Blackstone Group LP and Catalyst Capital. But the lack of clarity on whether the government would allow a sale of Wind to an incumbent in the future was said to be a big deterrent.
Another potential transaction would have seen Russian-backed VimpelCom consolidate its control of the company by buying out Mr. Lacavera's stake. That plan was shelved last year after the government stalled it on national security grounds.
The sale price implies there's not much value left in Wind's smaller rival, Mobilicity, which has similarly been seeking a buyer. Telus offered $380-million for Mobilicity in May, 2013, and earlier this year bid $350-million before the federal government forced the Vancouver-based company to drop the idea by threatening repercussions.
If Wind is worth only about $300-million, Mobilicity, with far fewer subscribers and less valuable spectrum, is likely to fetch even less. That's assuming it can find a buyer. The company has been under creditor protection for close to a year and has said in court filings that it struggled to find any bid but Telus's.
Both companies launched startup wireless businesses after purchasing spectrum licences in the 2008 public auction for the cellular airwaves.