Manitoba Telecom to buy Allstream

TORONTO (03/18/2004) - Manitoba Telecom Services Inc. on Thursday agreed to acquire fellow telco Allstream Inc. in a deal valued at US$1.7 billion.

Under the terms of the proposed transaction, MTS will acquire all outstanding shares of Allstream at an offering price of $23 in cash per share plus 1.0303 MTS shares, which equals approximately $81.12 per Allstream share.

In addition, the deal will see MTS gain access to Allstream's fibre-based network and the ability to offer gigabit Ethernet, Internet Protocol Multiprotocol label switching (IP-MPLS) as well as Allstream's other IP-based offerings including voice over IP (VoIP) capabilities.

The combined company is expected to reap annual sales of $2 billion and more than $2.9 billion in assets and will consist of 7,000 employees across the country.

"This proposed transaction makes financial sense in that it creates a more stable organization," said John McLennan, CEO of Allstream during a teleconference Thursday morning. "It makes business sense (to allow us) to offer a wider range of products and services...and expand beyond the (Canadian) enterprise market to all areas of the market."

According to MTS CEO Bill Fraser, the combined entity represents an integration of the strengths of each telco. Fraser added that MTS intends to build on the successes of Allstream's blue chip customer base and capabilities and said the two are ready to "hit the ground running."

However, the deal is still pending an Allstream shareholders vote. Additionally, MTS could face potential challenges from one of its main shareholders, BCE Inc. BCE holds 21 percent interest in MTS and Fraser said the company did not seek approval from BCE prior to announcing the proposed acquisition.

The combined company would compete directly with Bell Canada and Telus Corp. as an incumbent local exchange carrier.

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