(Updates with Bell Aliant CEO’s comment in sixth paragraph.)
July 23 (Bloomberg) -- BCE Inc., Canada’s biggest telecommunications company, agreed to buy the shares of Bell Aliant Inc. it doesn’t already own for C$3.95 billion ($3.68 billion) in cash and stock.
The bid of C$31 a share for the provider of phone, TV and Internet service in eastern Canada is almost 10 percent more than Bell Aliant’s closing price yesterday, according to a statement from Montreal-based BCE today. BCE, known by its brand name Bell, already controls Halifax-based Bell Aliant through a 44 percent equity stake.
The long-speculated deal to consolidate Bell Aliant will help cut costs and boost earnings, giving BCE more capacity to keep increasing dividend payments to shareholders. BCE said it projects the transaction will lead to annual savings of about C$100 million and increase free cash flow by about C$200 million a year after paying dividends.
“Dividend growth is very challenging for this company,” Dvai Ghose, an analyst at Canaccord Genuity Group Inc., said in a phone interview. “They have very little free cash flow growth for next year unless they make this acquisition. There’s nothing strategic when you already control the asset.”
BCE pays a quarterly dividend of 61.75 Canadian cents a share, offering investors a dividend yield of about 4.8 percent. The payout has been increased 10 times since the end of 2008, the company said in today’s statement.
Some of the savings will come from job cuts at the combined company, Karen Sheriff, Bell Aliant’s chief executive officer, said in a phone interview today, without giving specifics.
Bell Aliant shareholders can elect to receive C$31 in cash or 0.6371 of a BCE share, subject to a 25 percent cash cap on the offer. Investors can also take C$7.75 in cash and 0.4778 of a BCE share. The tender offer will start in mid-August, and the deal is expected to close by Nov. 30. Bell Aliant’s board is recommending that shareholders accept the offer.
Shares of Bell Aliant rose 12 percent to C$31.53 at the close in Toronto, while BCE added 1.7 percent to C$49.82.
When the transaction closes, Bell Aliant’s public minority shareholders will have a 7 percent stake in BCE. BCE plans to fund the offer with available sources of liquidity and by issuing about 61 million common shares for the equity portion of the deal.
Privatizing Bell Aliant supports BCE’s dividend growth model and capital investment strategies, and BCE can still maintain its strong balance sheet and its credit ratings, Siim Vanaselja, BCE’s chief financial officer, said in the statement. Standard & Poor’s and DBRS Ltd. said today that BCE’s ratings won’t be affected by the deal for Bell Aliant.
The deal also helps BCE compete better in bigger markets like Ontario and Quebec, Vanaselja said on BNN Television. “The telecom sector is intensely competitive and that’s what we are there to manage,” he said.
Canadian officials have been pushing for a stronger fourth competitor in the wireless market to compete with BCE, Telus Corp. and Rogers Communications Inc. Last month, Quebecor Inc. said it may expand nationally with its Videotron brand after picking up radio waves across the country in a government auction.
“What BCE wanted to do is, before that happens, they want to just make sure they are in a position to capitalize on all the infrastructure builds and all the investment that they’ve made across all their companies,” said Brian Huen, who helps manage about C$350 million as managing partner at Red Sky Capital Management Ltd. in Toronto.
A key reason for the deal was to bring together home-phone and wireless services in the Atlantic Canada region Bell Aliant covers, George Cope, CEO of BCE, said during a conference call today.
“We’ve had a wireline business within BCE separate from Bell Mobility in one part of the country, and from our perspective this was absolutely an important time to get that moving forward,” he said.
BCE will continue to invest about C$2.1 billion in broadband and wireless networks in Atlantic Canada over the next five years, and Bell Aliant will still serve customers in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. Customers can expect more investment in Ontario and Quebec too, Sheriff said.
While Telus eclipsed BCE last year to become Canada’s second-biggest wireless operator by subscribers, BCE is still the country’s largest telecommunications provider with C$20.4 billion in revenue last year and a market value of C$38 billion as of yesterday.
--With assistance from David Scanlan in Toronto.