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BCE Arm Bell Canada Clears All Hurdles in $3.9B MTS Buyout

BCE Inc. 's BCE subsidiary, Bell Canada,has gained approval from the Innovation, Science and Economic Development Canada (ISED) and the Competition Bureau for the $3.9 billion acquisition of Manitoba Telecom Services Inc. ("MTS"). This marks the final clearance of all hurdles by Bell Canada required to complete the transaction, paving the way for the expected scheduled launch of Bell MTS on Mar 17, 2017.

To fend off regulatory concerns, Bell Canada has agreed to transfer one-fourth of MTS postpaid subscribers, for total proceeds of approximately $300 million, subject to final adjustments, and 13 MTS retail locations following the completion of the Bell MTS transaction, to its nearest national competitor, Telus Corporation TU . Also, Bell and MTS have agreed to transfer a total of 40 MHz of 700 MHz, AWS-1 and 2500 MHz wireless spectrum currently held by MTS to Xplornet Communications Inc.

Prior to this final regulatory approval announced on Feb 15, 2017, the transaction was supported by MTS shareholders on Jun 23, 2016 and approved by the Manitoba Court of Queen's Bench on Jun 29. On Dec 20, 2016, the Canadian Radio-television and Telecommunications Commission (CRTC) approved the transfer of the broadcasting distribution undertaking license held by MTS to Bell. As part of the transaction closing arrangements, the amount of the reverse break fee payable by Bell to MTS in certain circumstances has also been increased from $120 million to $200 million.

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. The company will also roll out its Gigabit Fibe Internet, offering access speeds up to 20 times faster than those currently available. This investment will allow Bell to compete effectively with the local cable internet providers in Manitoba. We note that the company has been aggressively expanding its Fiber to the Home coverage across Canada and its Internet TV service, Fibe TV, is presently ranked as the most popular TV service in the country.

New Synergies and Operational Benefits

MTS offers broadband and IPTV service to around 70% homes in Manitoba. Through the latest acquisition, Bell Canada will be able to expand its broadband Internet subscriber base and IPTV customer base. 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.

Bell Canada further 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 may 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.

Thus, 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 BellCanada's first-quarter 2017 earnings release, which is expected around Apr 26, 2017.

In spite of such beneficiaries, shares of BCE underperformed the Zacks categorized Diversified Comm Services industry's performance over the past three months. The stock returned 3.63% compared with the industry's gain of 3.83% over the same period.

BCE currently carries a Zacks Rank #3 (Hold). You can see .

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

Recent Approvals on Deals

Telecommunications and data service firm Windstream Holdings, Inc. WIN received all of the state and federal regulatory approvals required for its $1.1 billion acquisition of EarthLink Holdings Corp. ELNK .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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