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BCE's Astral Buyout Bid Rejected

Zacks Equity Research

Bell Canada’s, a 100% subsidiary of BCE Inc. (BCE), buyout bid for Astral Media worth C$3.38 billion ($3.4 billion) has failed to obtain regulatory approvals. The Canadian Radio-television and Telecommunications Commission (CRTCF) rejected the deal citing that it would result in concentration of too much power in the hands of Bell Canada in the broadcasting sector.

In Canada, BCE is already the largest internet service provider, the second largest wireless service provider and third largest television distributor. The company recently acquired 75% stake in Maple Leaf Sports & Entertainment Ltd. (:MLSE) jointly with its major rival Rogers Communications Inc. (RCI). The stake in MLSE strengthens Bell’s sports leadership with the right to broadcast four sports channels of the former — Maple Leafs, Raptors, Marlies and Toronto FC.

The Astral transaction would further add 107 radio stations, 49 specialty television stations and 2 national English language television stations to Bell’s holdings. The buyout will increase BCE’s market share of English-language TV to 42.7% and Canadian TV services to 33.1%.

As a result, the acquisition would provide a monopoly advantage to Bell Canada and reduce competition in a host of related services, such as Internet and wireless, by raising the cost of services in the Canadian market.

The move has been a victory for the company’s rivals, in particular Quebecor Inc., which would have otherwise faced growing competition for its Videotron cable service and TVA television network. The transaction was also facing a huge opposition from its key competitors Telus Corporation (TU) and Rogers.

We are maintaining our long-term Neutral recommendation on the stock. However, for the short term (1-3 months), BCE retains the Zacks #3 (Hold) Rank.

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