November 23, 2015 / 12:26 PM / 4 years ago

Manitoba Telecom to sell fiber-optic network to Zayo Group

TORONTO (Reuters) - Canadian telecom company Manitoba Telecom Services Inc MBT.TO said on Monday it had agreed to sell its fiber-optic network Allstream, sending its shares up 5 percent as investors cheered the exit of a disappointing asset.

The sale of the cash-flow negative national network - to U.S.-based Zayo Group Holdings Inc (ZAYO.N) for C$465 million ($347.4 million) in cash - allows Manitoba Telecom to focus on a turnaround plan for its business selling phone, Internet and television connections in the central province of Manitoba.

Allstream “was a chronic underperformer in terms of the expectations of the marketplace,” Manitoba Telecom CEO Jay Forbes said in a telephone interview.

“Expect an even more aggressive player in this Manitoba marketplace,” he said.

Manitoba Telecom’s shares last traded up 5.2 percent at C$30.07 on the Toronto Stock Exchange, their highest level since September 2014, while Zayo’s Nasdaq-listed shares gained 2.3 percent to $23.90.

Zayo said Allstream’s 9,000-plus kilometers (5,600 miles) of connections in Canada’s five biggest cities and around 20,000 kms (12,400 miles) of long-haul fiber fit with the company’s 87,000 miles (140,000 km) network in the United States and Europe.

The deal is expected to close early next year, with Manitoba Telecom taking extra effort to consult with competition and national security bodies after an earlier deal failed.

The company had agreed to sell Allstream to a group controlled by Egyptian telecom tycoon Naguib Sawiris for C$520 million in 2013 but the federal government blocked the deal on national security grounds.

In May, Winnipeg-based Manitoba Telecom slashed jobs at Allstream and pulled back on its dividend, putting Allstream back up for sale amid tough competition from national rivals in the sparsely-populated province.

It also paid C$120 million to deal with spiraling defined-benefit pension costs that should eliminate the need for solvency payments in 2015 and 2016.

Manitoba Telecom will retain pension obligations for Allstream’s retirees and current employees under the Zayo deal.

Forbes declined to say whether the company plans to re-up its dividend payout, saying a more fulsome update to its plans will be unveiled early next year.

The company expects to realize net proceeds of about C$425 million after closing costs.

Manitoba Telecom was advised by CIBC World Markets Inc and TD Securities Inc, as well as Stikeman Elliott. Zayo was advised by RBC Capital Markets, with Gibson Dunn & Crutcher LLP and Borden Ladner Gervais LLP its legal advisers.

Additional reporting by Anet Josline Pinto in Bengaluru; Editing by Savio D'Souza and Bill Trott

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