Allstream (NASDAQ:ALLSB)
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MTS to acquire Allstream, creating powerful national provider
- Complementary fit creates formidable national provider with strong growth
platform - Immediately accretive; expected annual synergies of $120 million
increase value creation for shareholders - Shareholders to benefit from an
intended substantial issuer bid of approximately $800 million - Annual dividend
expected to increase by 120% to $2.20 per share
WINNIPEG and TORONTO, March 18 /PRNewswire-FirstCall/ -- Manitoba Telecom
Services Inc. (MTS), (TSX: MBT) has agreed to acquire all of the Class A and
Class B shares of Allstream, (TSX: ALR.A, ALR.B; NASDAQ: ALLSA, ALLSB) in a
transaction valued at $1.7 billion. This combines the strengths of North
America's most profitable communications provider with Canada's largest and most
profitable alternative communication solutions provider.
The proposed transaction has been structured to benefit both companies'
shareholders, allowing each to participate in the future opportunity of the
expanded company. Under the terms of the arrangement agreement MTS will acquire
all of the outstanding shares of Allstream at an offering price per Allstream
share of $23.00 in cash plus 1.0909 MTS shares. The offer equates to a price of
$81.12 per Allstream share, based on the closing price per MTS share on March
17, 2004. The offer represents a premium of approximately 19% for Allstream
shareholders over the average closing price of Allstream shares on the TSX and
NASDAQ on March 17, 2004.
To improve liquidity and reduce ownership dilution, MTS intends to undertake a
substantial issuer bid of approximately $800 million of its shares following the
closing of the transaction. In addition, it is expected that the expanded
company will produce strong andgrowing free cash flows. MTS intends to more
than double its annual dividend to $2.20 per share (payable quarterly)
representing an approximate 4.1% yield based on MTS's closing price on March 17,
2004.
The transaction is expected to be immediately accretive to MTS's earnings per
share and cash flow per share. While there is a complementary fit to the
companies' operations, the transaction is expected to generate annual synergies
of $120 million by 2005 through a combination of approximately $40 million of
operating synergies and $80 million of tax savings as a result of Allstream's $3
billion in unused tax losses.
"Since going public in 1997, we have created and delivered significant and
enduring value for our shareholders," said Bill Fraser, President & CEO of MTS.
"We have succeeded by focusing on our core competencies and prudently allocating
our capital resources to deliver services to our customers. We're delighted to
now be extending our capabilities and expertise to the national stage with
Allstream, and we look forward to the opportunity for profitable growth and
value creation this next step in our evolution represents."
John McLennan, Vice Chairman and Chief Executive Officer of Allstream, said,
"This is a complementary fit that makes strategic, financial and business sense.
It provides our shareholders with value now and with continuing upside potential
going forward. It creates a financially strong company with blue chip clients in
Canada and the United States, and with service offerings in all segments of the
industry. It provides the platform to participate in a bigger way in the
telecommunications business. And it strengthens competition in Canada by
creating a strong player in our industry and a more attractive national
alternative for customers."
On a pro forma basis, the company will have annual revenues of more than $2
billion, in excess of 7,000 employees, a leading-edge fibre based national
network infrastructure and more than $2.9 billion in assets. Underpinningthe
company will be a strong balance sheet and very profitable operations. "We are
combining the strengths of the most profitable communications provider in North
America with Canada's largest alternative business communications solutions
provider whose operations are already profitable," said Mr. Fraser.
Allstream offers a broad portfolio of business solutions including data and
voice connectivity, infrastructure management and information technology
services. Allstream currently commands an 11% share of the Canadian business
telecommunications market with an impressive blue chip customer base, and ranks
second in terms of market share in every market in which it operates. By
capitalizing on both companies' inherent strengths, the expanded company is well
placed to better serve customers.
MTS gains access to Allstream's leading edge fibre based network and ability to
offer Gigabit Ethernet, IP - MPLS and other IP based solutions to its enterprise
customers with out-of-province requirements. Inaddition MTS will be faster to
market with solutions for its corporate customers and have greater flexibility
for addressing their needs than in the past. MTS has made significant broadband
investments in its provincial network over the past number of years resulting in
an advanced network that is highly compatible with the Allstream platform. As
such the transition to Allstream's platform is expected to occur seamlessly. For
Allstream, the acquisition means it is now operating from a position of
significant financial strength resulting in a stronger position in the
marketplace and enhanced credibility.
Bill Fraser will be President and CEO of the expanded company. Cheryl Barker,
current President & COO, MTS Communications, will head up the Manitoba
operations and John MacDonald, current President & COO of Allstream, will be
responsible for national enterprise business. Wayne Demkey, currently MTS
Executive Vice-President Finance & CFO will assume this responsibility for the
expanded company. Itis expected that Allstream's current management team will
remain intact. Mr. McLennan, Vice Chairman and CEO of Allstream, will join the
MTS Board of Directors, and will become Vice Chairman. In addition, the MTS
Board of Directors has invited two of Allstream's current directors to become
directors of MTS later in 2004.
Both companies have well developed brands. MTS has operated in Manitoba for
almost 100 years and the brand is well recognized and respected. Allstream, too,
has established a well recognized brand and both brands will be utilized going
forward. Headquarters for the expanded company will be located in Winnipeg.
Operations for Allstream will continue to be based out of Toronto, addressing
the needs of the national enterprise market.
"The Allstream team has done a tremendous job focusing the company on its target
markets and establishing Allstream's growing profitability and free cash flow
generation," Mr. Fraser continued. "We intend to build on these successes under
the umbrellaof MTS's corporate strategies and business approach -- leveraging
its state of the art network to build on Allstream's blue chip customer base and
capabilities to offer next generation IP services to customers. And, given the
complementary nature of our two businesses, we will hit the ground running."
The Board of Directors of both companies have approved the proposed transaction.
The Board of Directors of Allstream is recommending the transaction for approval
by its shareholders at a meeting to be held in May 2004. It is anticipated that
a circular will be mailed to Allstream shareholders in early April 2004, with
closing expected to occur in June 2004. MTS was advised by CIBC World Markets.
Scotia Capital Inc. acted as financial advisor to Allstream Inc.
In addition to approval from Allstream's shareholders, the transaction is
subject to regulatory and court approvals, required consents and other customary
closing conditions. If under specified conditions the transaction is not
completed, Allstream has agreed to pay a break fee of $50 million.
Under the terms of the arrangement agreement, Allstream shareholders who are
Canadian residents will receive 1.0909 MTS common shares and $23.00 in cash for
each Class A or Class B Allstream share. In order to comply with Canadian
ownership limitations, Allstream shareholders who are non-Canadian residents
will receive 1.0909 MTS Class B non-voting exchangeable preference shares and
$23.00 for each Class A or Class B Allstream share. The MTS Class B preference
shares will participate equally with common shares in all dividends and the
Class B shares are exchangeable into common shares on a 1 for 1 basis subject to
foreign ownership restrictions.
MTS will continue to be listed on the TSX and willevaluate the appropriateness
of obtaining a NASDAQ listing. It is intended that the MTS Class B preference
shares will be listed on the TSX, subject to required approvals.
FINANCIAL OUTLOOK
-----------------
It is expected that on a proforma basis the expanded company will achieve 2004
revenues of approximately $2.0 to $2.1 billion, EBITDA of more than $700 million
and free cash flow before dividends and buybacks of $280 to $310 million. 2004
proforma earnings per share is forecast to exceed $3.00 and cash earnings per
share is expected to range between $4.50 and $4.65. These forecasts exclude
potential post closing 2004 synergies. Capital spending in 2004 is forecast at
$330 million.
MTS POSITION ON INCOME TRUST CONVERSION
The Board of Directors has concluded that an acquisition of Allstream is in the
best interest of the Company and can best maximize long term value creation for
shareholders. The Allstream transaction has a number of attributes of an income
trust as a result of the availability of approximately $3.0 billion of
non-capital losses.
In evaluating a possible conversion to an income trust, management and the Board
of Directors carried out an extensive review and analysis of the implications on
the Company's ability to operate successfully as an income trust. An analysis of
MTS's current and future cash flows and requirements to sustain the Company was
carried out. In addition to ongoing operations expenses included in EBITDA, MTS
also incurs additional significant cash costs. These include capital
expenditures, interest expense, deferred charges and net funding of the MTS
pension plan. The Board believes long-term shareholder value can best be
achieved by continuing to follow MTS's proven strategies for delivering value to
shareholders. Today's announced offer by MTS to acquire Allstream creates the
opportunity for immediate value enhancement for shareholders and significant
future growth potential.
NOTICE OF INVESTOR CONFERENCE CALL
A conference call with the investment community is scheduled for 8:30 a.m.
eastern time. The dial-in numbers are:
- Toronto - 416-405-8532
- North American Toll Free - 1-877-295-2825 and
- International - 800-3420-4230.
A live audio webcast of the investor conference call can be accessed by visiting
the Investors section of the MTS website (http://www.mts.ca/) or the Allstream
website (http://www.allstream.com/). A replay of the conference call will be
available until midnight April 15, 2004, and can be accessed by dialing
416-695-5800 or 800-408-3053 pass code 3022432 followed by the number sign. The
audio webcast will be archived on the websites.
International participants will need to dial the International Access Code
normally used to reach North America prior to dialing the Global Toll Free
number. We recommend that participants contact the long distance operator of the
country they are in to obtain this code, since some countries have multiple
International depending on the region they are in. It is important not to add a
"1" in front of the Global Toll Free number unless it is part of the
International Access Code provided.
NOTICE OF NEWS CONFERENCE
Members of the media are invited to attend a news conference scheduled for 11:00
a.m. eastern time today at the Hilton Toronto, 145 Richmond Street West, Toronto
III Ballroom on the Convention Level. Participants can also join the conference
by dialing:
- Toronto - 416-405-9328
- North American Toll Free - 1-800-387-6216, and
- International -800-7664-7664.
A live audio webcast of the press conference can be accessed by visiting the
Investors section of the MTS website (http://www.mts.ca/) or the Allstream
website (http://www.allstream.com/). A replay of the press conference call will
beavailable until midnight April 15, 2004 and can be accessed by dialing
416-695-5800 or 800-408-3053 pass code 3022441. The audio webcast will be
archived on the websites.
International participants will need to dial the International Access Code
normally used to reach North America prior to dialing the Global Toll Free
number. We recommend that participants contact the long distance operator of the
country they are in to obtain this code, since some countries have multiple
International depending onthe region they are in. It is important not to add a
"1" in front of the Global Toll Free number unless it is part of the
International Access Code provided.
About MTS
MTS is Manitoba's preeminent, full-service telecommunications company.
Seamlessly blending innovative solutions and world-class technology, MTS
connects its customers to the world. Qunara Inc., MTS's eCommerce, eBusiness and
Internet Data Centre subsidiary, provides business solutions across North
America. MTS's common shares are listed on The Toronto Stock Exchange (trading
symbol: MBT). Its web site is located at www MTS.ca.
This news release contains forward-looking statements and there are risks that
actual results may differ materially from those contemplated by these
forward-looking statements. Additional information on these risks can be found
in the Company's filings with the Canadian securities commissions. MTS disclaims
any intention or obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. The MTS
Board of Directors has reviewed this news release.
About Allstream
Allstream is a leading communications solutions provider with a world-class
portfolio of Connectivity, Infrastructure Managementand IT Services. Focused on
the Business market, Allstream collaborates with customers to create tailored
solutions that meet their unique needs and help them compete more effectively.
Spanning more than 18,800 kilometres, Allstream has an extensive broadband
fibre-optic network and the greatest reach of any competitive communications
solutions provider in Canada, and provides international connections through
strategic partnerships and interconnection agreements with other international
service providers. Allstream is a public company with its stock traded on the
Toronto Stock Exchange under the symbols ALR.A and ALR.B and the NASDAQ National
Market system under the symbols ALLSA and ALLSB. Visit Allstream's website,
http://www.allstream.com/ for more information.
Note to Allstream Investors
This news release includes statements about expected future events and/or
financial results that are forward-looking in nature and subject to risks and
uncertainties. For those statements, we claim the protection of the safe harbor
for forward-looking statements provisions contained in the United States Private
Securities Litigation Reform Act of 1995. The Company cautions that actual
performance will be affected by a number of factors, many of which arebeyond
the Company's control, and that future events and results may vary substantially
from what the Company currently foresees. Discussion of the various factors that
may affect future results is contained on page 1 of the Company's Annual
Information Form dated May 2, 2003, which is filed with the Securities and
Exchange Commission, the Ontario Securities Commission, and SEDAR.
To view the MTS/Allstream fact sheet, please visit:
http://files.newswire.ca/337/ProjectFactSheet.pdf
----------------------------
(1) Earnings per share plus deferred taxes.
DATASOURCE: Allstream Inc.
CONTACT: please contact: MTS: Investors: Brad Woods,
Director Investor Relations, (204) 941-8283, ;
Media: Melanie Lee-Lockhart, Manager Corporate Communications, (204) 941-1043,
; Allstream: Investors: Brock Robertson,
Senior Vice President Investor Relations & Treasury, (416) 345-3125,
; Dan Coombes, Director Investor Relations,
(416) 345-2326, ; Media: May Chong, Director
Corporate Communications,(416) 345-2342, ; MTS
Website: http://www.mts.ca/; Allstream Website: http://www.allstream.com/