Manitoba Tel selling Allstream

WINNIPEG – Manitoba Telecom Services Inc. (TSX: MBT) has agreed to sell its Allstream business telecommunications arm and use about half of the proceeds to reduce its pension and debt obligations.

Winnipeg-based MTS, which operates Manitoba’s largest telecommunications business, says the deal values Allstream at $520 million.

Manitoba Tel says it expects to realize $405 million from the sale, of which $130 million will be used towards the company’s pension plan and $70 million will be used to repay debt incurred in February to meet its pension obligations.

“This transaction makes MTS a stronger, more focused and more valuable company,” said Pierre Blouin, Manitoba Tel’s chief executive officer.

Get weekly money news

Get expert insights, Q&A on markets, housing, inflation, and personal finance information delivered to you every Saturday.

Sign up for weekly money newsletter Sign Up

By providing your email address, you have read and agree to Global News' Terms and Conditions and Privacy Policy.

“MTS goes forward as a pure-play telecom with a strong consumer franchise and significant free cash flow to support our dividend.”

The deal is subject to certain conditions but it’s expected to close later this year.

The buyer is Accelero Capital Holdings, a private investment group focused on telecommunications, digital media and technology companies.

Blouin said the transaction will enable Allstream to accelerate its strategy towards achieving long-term sustainable growth.

“Accelero brings access to capital, telecom expertise and intimate knowledge of the Canadian marketplace. We have confidence that Accelero and Allstream’s management will together succeed in realizing Allstream’s full potential,” Blouin said.

“This is a very positive development for Allstream employees, customers, business partners, and for increased competition across the Canadian enterprise market.”

Allstream, formerly an independent publicly traded company created after AT&T Canada restructured, competes in the business telecom market against Bell Canada, Telus and others.

When it bought Allstream in 2004, MTS said the Toronto-based company would give the Manitoba-focused company a national presence in certain types of telecom services, mainly geared to large corporations and institutions.

However, the Allstream deal has been controversial from the start and the company said Friday that it will recognize a loss of $50 million on a non-cash, post-tax basis.

It estimated the realized return on its investment in Allstream at minus one per cent.