Zayo Acquires Manitoba Telecom's Allstream for $350 Million

  • Deal expands Zayo's fiber footprint in Canada's top markets
  • MTS had a 'large number of potential buyers,' company says

Zayo Group Holdings Inc., a U.S. telecommunications infrastructure owner, agreed to buy Manitoba Telecom Services Inc.’s Allstream unit for C$465 million in cash ($350 million), adding a fiber-optic network concentrated in Canada’s largest metropolitan markets.

Zayo bought Allstream for its fiber footprint in Toronto, Montreal, Vancouver, Ottawa and Calgary, which connect to 3,300 buildings, the Boulder, Colorado-based company said in a statement Monday. The deal came after interest from a “large number of potential buyers,” MTS said in a statement.

The price is higher than expected, Phillip Huang, a Toronto-based analyst with Barclays Plc, said in a note to clients Monday. Yet MTS will still have to pay for the pensions of Allstream employees, he wrote.

The sale marks the end of a process that Winnipeg, Manitoba-based MTS began in July, when it hired advisers to help sell Allstream as part of a larger cost-cutting effort. Allstream had C$153.9 million in revenue in the period ended Sept. 30.

Manitoba Telecom climbed 5.5 percent to C$30.15 at the close in Toronto, its biggest jump since May, while Zayo rose 2.4 percent to $23.93 in New York.

Allstream’s revenue has declined 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 to Accelero Capital Holdings Sarl Group, the investment firm co-founded by Egyptian billionaire Naguib Sawiris, citing national security concerns. MTS runs telecommunications networks for many of Canada’s government agencies.

Before selecting a buyer, MTS worked with the government to understand regulators’ concerns, Chief Executive Officer Jay Forbes said in a phone interview.

“Transparency was evident in our dealings with Ottawa throughout this process, and again we believe that we have understood their needs,” Forbes said. Zayo already works extensively with the U.S. government, he said.

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