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BCE's Subsidiary Acquires MTS for $3.9B, Unveils Bell MTS

Zacks Equity Research

On Mar 17, 2017, BCE Inc.’s BCE subsidiary, Bell Canada completed the acquisition of Manitoba Telecom Services Inc. ("MTS") for $3.9 billion and launched Bell MTS, as scheduled. With this buyout, the company completed the acquisition of all 74,398,389 common shares of MTS, all of its issued and outstanding common shares. However, following this deal, BCE will divest about one-fourth of MTS postpaid subscribers, for total proceeds of approximately $300 million,  and 13 MTS retail locations to its nearest national competitor, TELUS Corporation TU to dispel regulatory concerns and trim cash outlay, as per prior agreement.

With the completion of the transaction, Bell Canada gained almost 710,000 wireless, Internet and IPTV customers in Manitoba, a 5% increase in total broadband service subscribers. This positions Bell Canada as one of the largest mobile provider in Manitoba with more than 470,000 total Bell and MTS wireless subscribers. Notably, MTS offers broadband and IPTV service to around 70% homes in Manitoba. Bell Canada’s data center and cloud computing operations are also likely to get a boost with the integration of MTS’ existing data center in Winnipeg.

Further, Bell Canada expects to capture increased annualized cost synergies of approximately $100 million from the integration of MTS, which is double the previous $50 million estimate announced on May 2, 2016. The additional savings are likely to come from reduced wireless roaming and network sharing, network backhaul and wholesale costs, increased wholesale revenues, Bell's volume-based purchasing advantages and other operational efficiencies.

Consequently, the horizontal integration of the MTS buyout will drive Bell Canada’s top-line and EBITDA growth, going forward. Hence, we are looking forward to see the benefits of the MTS acquisition in Bell Canada’s first-quarter 2017 earnings release, which is expected around Apr 26, 2017.

Additional Investments

Following the latest approval, Bell MTS plans to invest $1 billion over the next five years to enhance broadband networks and services in Manitoba. This investment will allow Bell Canada to compete effectively with the local cable internet providers in Manitoba. Investment in the community includes a new Bell Let's Talk project led by Clara Hughes.

The company will also roll out Fibe TV, CraveTV, Gigabit Fibe Internet and Canada's fastest-ranked wireless network for both large and small communities. New 4G LTE wireless services will be provided in the Churchill town.

In spite of such beneficiaries, shares of BCE underperformed the Zacks categorized Diversified Communication Services industry's performance in the past three months. The stock returned 2.15% compared with the industry's gain of 6.15% in the same period.

BCE currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Latest Deal Approvals

According to a recent LightReading report, U.S. telecom behemoth AT&T Inc. T has gained approval from the European Commission, an institution of the European Union (EU), for its proposed $85.4 billion acquisition of the media giant Time Warner Inc. TWX. However, the deal awaits a green signal from the U.S. Department of Justice (DOJ). If the proposed merger finally goes through, the combined entity will become a major player in the consolidated telecom-media space, posing threat to the leading cable MSO (multi service operator) and media and entertainment firm, Comcast Corp. CMCSA which acquired NBC Universal in 2011.

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