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(Recasts with context on competition, cash flow for dividend. Adds portfolio manager and analyst comment)
By Euan Rocha and Alastair Sharp
TORONTO, July 23 (Reuters) - BCE Inc said on Wednesday it will pay C$3.95 billion ($3.68 billion) to take regional affiliate Bell Aliant private, securing access to its cash flow and bolstering BCE's position as Canada's largest telecom company.
The deal for the 56 percent of Bell Aliant that BCE doesn't already own comes as the telecom industry braces for the possible emergence of a fourth national wireless company, a key goal of the federal government's telecom policy.
"This makes sense given that the regulators are looking to fight consolidation at every turn," said Ryan Bushell, a portfolio manager at Leon Frazer, which holds shares in both companies. "It makes sense to bring it all up to the bottom line for BCE, and it helps support their dividend."
BCE's move should protect its dividend growth profile for another year or two even if its wireless business is hit by competitive turbulence, Desjardins analyst Maher Yaghi said in a note.
Montreal-based BCE said the deal will save the combined companies C$100 million a year in costs, partly due to the elimination of duplicate public company costs.
While Bell Aliant's main operations are in Atlantic Canada, the deal also broadens BCE's prospective customer base in some areas of rural Ontario and Quebec.
BCE said the deal values Bell Aliant at C$31 a share, a premium of 10 percent to the stock's close on Tuesday. It expects to close the deal by late November.
For every share they own, Bell Aliant investors can elect to receive cash, or 0.6371 of one BCE share, or C$7.75 in cash and 0.4778 of one BCE share.
Shares in BCE were up 1.2 percent at C$49.61 late on Wednesday morning on the Toronto Stock Exchange, while Bell Aliant shares jumped almost 11 percent to sit just above BCE's offer price at C$31.27.
Acquisition targets for BCE have been limited. The Canadian government has adamantly opposed deals that would give additional market share or spectrum to the country's three dominant players: BCE, Rogers Communications Inc and Telus Corp.
Still, shares in regional player Manitoba Telecom Services gained 1.8 percent to C$31.77 as some investors bet it could also find itself in BCE's sights. But Canaccord Genuity analyst Dvai Ghose said in a note that such a deal was unlikely given the regulatory hurdles.
BCE competes with Rogers and Quebecor Inc in Eastern Canada for phone, Internet and TV customers, while sharing a national wireless network with Western Canada-focused Telus.
BCE, which operates under the Bell name, will fund the deal with available cash, and it will issue about 61 million shares to fund the equity portion. It said cash will cover a quarter of the purchase, and stock the rest.
Bell Aliant's board unanimously advised investors to back the deal on the recommendation of its financial advisers, Scotia Capital and Barclays Capital Canada.
The takeover needs approval from Canada's Competition Bureau, but not from the Canadian Radio-Television and Telecommunications Commission or Industry Canada, the companies said, as there is no change in control of Bell Aliant and no transfer of wireless spectrum licenses.
BCE said over the next five years it plans to spend C$2.1 billion in Atlantic Canada, whose provinces of New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island had a combined population of 2.3 million in a 2011 census.
$1=$1.07 Canadian Additional reporting by Ashutosh Pandey in Bangalore; Editing by Savio D'Souza, Peter Galloway and Jeffrey Hodgson