UPDATE 3-BCE-Manitoba Telecom deal seen facing tough regulatory scrutiny

Mon May 2, 2016 3:12pm EDT
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* BCE to pay C$40/shr, a premium of 22 pct

* Company to assume Manitoba Telecom's debt of about C$800 mln

* BCE to invest C$1 bln over 5 years after deal closing (Adds analyst, CEO, lawyer comments, share price move)

By Euan Rocha and Arathy S Nair

May 2 (Reuters) - BCE Inc's C$3.1 billion ($2.5 billion) friendly bid for Manitoba Telecom Services (MTS) , the latest in a string of major Canadian telecom deals, is expected to test regulatory bounds and may need further concessions to win approval.

Canada's largest telecom and media player, BCE, said on Monday the C$40 a share cash and stock deal would significantly expand its western Canadian footprint.

While a move on MTS was widely expected after the company sold its Allstream unit to U.S.-based Zayo Group last year for C$465 million, winning approval will be no cinch, according to industry insiders.

"We do not believe regulatory approval will be automatic," said Desjardins analyst Maher Yaghi in a note, adding he expects scrutiny to be as high as that on BCE's takeover of media rival Astral. That deal was originally blocked by regulators before getting the nod after BCE agreed to sell some assets.

Despite regulatory concerns, the 22 percent premium offered by BCE was cheered by MTS investors, and shares in the company rose 15.4 percent to C$37.90 in afternoon trading, while those in BCE slid 30 Canadian cents to C$58.54.   Continued...