MTS on Monday announced it has inked a deal to sell its Allstream business to U.S.-based fibre network operator Zayo for C$465 million (€327 million) in cash.
The Canadian operator, which announced in August that it was nearing the end of a restructuring programme and had decided to offload business services unit Allstream, said it engaged with a number of strategic and financial buyers before brokering the deal with Zayo.
"This transaction is the outcome of a comprehensive process which left no stone unturned," said Allstream CEO Jay Forbes.
"We are delivering on our complete turnaround and planned exit from Allstream, with the value of the business fully recognised through a sale process we feel confident has a high certainty of closing," he added. "The acquisition by Zayo represents a new beginning for Allstream and a significant new evolution in the competitive landscape of Canadian telecoms."
MTS acquired Allstream for C$1.7 billion in 2004. It attempted to sell the business to Egyptian led Accelero Capital Holdings for C$520 million two years ago, but the government blocked the deal on national security grounds.
Zayo said it is primarily interested in Allstream’s fibre and colocation assets. It intends to separate out Allstream’s communication infrastructure business, which accounts for half of its revenue, and integrate it with its own assets, rebranding the unit as Zayo Canada.
"Within today’s Allstream is a robust collection of fibre networks, which are enormously valuable to both Allstream and Zayo customers," said Zayo chairman and CEO Dan Caruso. "We will unleash the full potential of these assets by combining them with Zayo’s network and focus on providing high-quality and low-cost bandwidth to help fuel the growth of Canada’s economy," he said.
The other half of Allstream’s business will be split into two standalone business units: Voice and Universal Communications and Small Business.
"We believe these other businesses provide valuable and important services to their customers, and the business unit focus will enable them to grow and innovate," Caruso said.
"We’ve successfully done this on prior acquisitions," the CEO added. "The key is strong and focused leadership, appropriate management incentives, and standalone financial statements that allow transparency into performance."
The deal is subject to regulatory approvals, including national security approval and the go-ahead from the Competition Bureau. MTS said it expects it to close in the first quarter of 2016.
The sale will leave MTS in a stronger position, the company said.
"We have a new team, a new strategy and a new future," Forbes said. "We have made strong progress in 2015 executing on our strategy, resulting in significantly improved free cash flow generating capability, with plans for C$100 million in further free cash flow improvements over the next three years."
After closing costs, MTS expects to generate net proceeds of approximately $425 million from the sale.
