MANITOBA TELECOM SERVICES INC. (Toronto symbol MBT; www.mts.ca) gets around 55% of its revenue from its 1.3 million telephone and wireless customers in Manitoba. The remaining 45% has come from its Allstream division, which sells integrated telephone, Internet and other communication services to over 50,000 businesses across Canada.
Following a strategic review, Manitoba Telecom has agreed to sell its Allstream subsidiary to Accelero Capital Holdings, a private firm controlled by Egyptian billionaire Naguib Sawiris.
In 2004, Manitoba Telecom paid $1.6 billion for Allstream. The sale price is $520 million, which is equal to 22% of Manitoba Telecom’s $2.4-billion market cap. If you disregard closing costs, Manitoba Telecom will receive $405 million. Assuming regulators approve, the company expects to complete the sale in the second half of 2013.
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Investing advice: Smaller Manitoba Telecom could be attractive takeover target
Manitoba Telecom will use the cash from the Allstream sale to contribute $130 million to its underfunded employees’ pension plan. It will also pay back $70 million of short-term loans it took out to finance recent pension contributions.
As well, the company will continue to fund the Allstream pension plans and will contribute $40 million to them when the deal closes.
In the latest issue of Canadian Wealth Advisor, we consider Manitoba Telecom’s prospects now that it has sold Allstream. We also examine its potential as a takeover target in Canada’s changing telecommunications landscape.
The stock has jumped 10.8% for us since the announcement of the Allstream sale and we look at whether the shares can go higher. We conclude with our clear buy-hold-sell advice on this stock.
COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members
Manitoba Telecom is seeking to make itself more efficient and profitable by selling off a large chunk of its business. Can you think of examples of companies that made themselves more profitable and attractive to investors by getting rid of a large part of their business rather than making ambitious acquisitions? Let us know what you think.
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