Manitoba Telecom Services Inc. gained as much as 6.4 percent after the Canadian telecommunications company said it’s cutting 500 jobs from its Allstream unit and reduced its dividend.
The cuts come after a strategic review by new Chief Executive Officer Jay Forbes in which the Winnipeg, Manitoba-based company said “Allstream is not integral or strategic to MTS’s future.”
Revenue at Allstream has fallen each year since the company started breaking out the unit’s finances in 2009, according to data compiled by Bloomberg. In 2013, the Canadian government rejected a plan to sell Allstream for C$520 million ($428 million) to an investment firm co-founded by Egyptian billionaire Naguib Sawiris, citing national security concerns.
“The reorganization at Allstream could improve the attractiveness of the asset to potential buyers down the road,” Maher Yaghi, a Montreal-based analyst at Desjardins Securities Inc., said in a note to clients.
The review showed Allstream lacked focus, spent money too freely and was struggling to add new customers.
“Fixed costs hadn’t fallen in tandem with revenue declines, badly eroding operating margins,” according to the review. The job cuts, of which 100 have already taken place, represent 25 percent of Allstream’s workforce.
MTS slashed its yearly dividend to C$1.30 from C$1.70 and said it would invest C$120 million to shore up its pension plan.
The shares rose 4 percent to $26.68 at 11:47 a.m. in Toronto, after earlier increasing to as high as $27.29.