Zayo is interested in adding Allstream’s substantial fiber and colocation assets to Zayo’s core network Communications Infrastructure business.
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Zayo will be purchasing Allstream for $465 million in cash and will be the first foreign company to fully own a Canadian telecom service since the government loosened foreign ownership restrictions in 2012.
Half of Allstream’s revenue is a direct fit with its existing core business, Zayo says.
Winnipeg-based Manitoba said in May it would cut jobs at Allstream by 20-30 percent as part of its plan to reduce its capital expenditure.
The point of the buyout is to give Zayo a presence in the major cities in Canada and links into the USA market.
Zayo cited Allstream’s fibre network as one of the main reasons for its acquisition. Allstream also operates colocation space in Toronto, Montreal, and Vancouver.
MTS president and CEO Jay Forbes said in a statement that the deal positions MTS for long-term success as it transforms into a customer-centric business in the face of intense competition.
After closing costs, MTS expects to realise net proceeds of approximately CAD 425 million. Its considering putting that towards paying down debt acquired as a result of pension prepayments and spectrum acquisitions.
In its most recent quarterly report, MTS said that only a “complete turnaround” of Allstream’s operations would allow the subsidiary to become financially sustainable. The sale was approved by the MTS board of directors and is expected to close in the first quarter of 2016.
Voice and University Communications will be the second new segment for Allstream, while the third will be Small Business.
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MTS has agreed to retain the pension obligation and related pension plan assets of retirees and other former employees of Allstream.
