Bell Canada, a 100% subsidiary of
BCE Inc.
(
BCE
), is facing major hindrances to its C$3.38 billion ($3.4 billion)
proposed acquisition of Astral Media from one of its key
competitors
Telus Corporation
(
TU
). The transaction was announced in March and is currently awaiting
regulatory approval.
Telus, which is the second largest Canadian telephone operator,
opposed to the pending deal and filed its complaint with the
Canadian Radio-television and Telecommunications Commission (CRTC),
citing that it will lead to the concentration of too much power in
the hands of Bell Canada in the broadcasting sector.
Telus also argued that the planned transaction would add 79
television stations and 107 radio stations to Bell's holdings.
These additions along with the pending transaction for increasing
ownership in Maple Leaf Sports & Entertainment TV assets and
its stake in the joint venture with Teletoon assets will increase
its market share of English-language TV subscribers to 49.5% in
Canada.
As a result, the proposed Astral Media 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.
Telus joined the protest league comprising Quebecor Inc., Cogeco
Cable Inc. and Eastlink, which raised their voices against the deal
last week. The CRTC is expected to hold the hearings on September
1.
If the proposed deal gets regulatory approval, then it will be
accretive to BCE's earnings and free cash flow per share upon
completion, driving shareholders return. Additionally, the
transaction would provide improved control on rising content costs,
in particular the French media, and attract opportunities for
advertising packages covering digital media properties, television
channels, radio stations and out-of-home advertising.
Moreover, the strong financials of Astral Media will allow Bell to
accelerate investments in broadband including Fiber-To-The-Node
(FTTN), Bell Fibe TV and 4G LTE networks. If the deal fails, Bell
will have to pay a break-up fee of C$150 million to Astral.
As a result, we will carefully watch how things unravel for the
proposed transaction from both sides and its financial impact on
BCE. We are maintaining our long-term Neutral recommendation on the
stock. However, for the short term (1-3 months), BCE retains the
Zacks #2 (Buy) Rank.
BCE INC (BCE): Free Stock Analysis Report
TELUS CORP (TU): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment
Research