By David Berman
Here are another couple of takes on the proposed telecom ownership rule changes proposed by the federal government in Wednesday’s Throne Speech.
The first comes from Vince Valentini, an analyst at TD Newcrest, who looked at which companies would benefit most if the changes actually were made and if there were a surge in mergers and acquisitions activity as Canadian companies and foreign telecommunications firms (hello AT&T Inc. (T) and Verizon Communications Inc.(VZ) ) looked for opportunities. In order of M&A attractiveness:
1. Cogeco Inc. (OTC:CGECF): “Small enough to be acquired by Canadian players, and the prospect of imminent rule changes could motivate both buyers and sellers to act quicker. There is minimal risk of Cogeco being a buyer of assets in Canada, in our opinion...”
2. Manitoba Telecom Services Inc. (OTC:MOBAF): “[Rural local exchange carriers] from the U.S. might be interested in scale expansion to the North, and the threat of this interest could stimulate larger Canadian [incumbent local exchange carriers] to make a move on widely held MTS.”
3. Telus Corp. (TU): “Large enough national wireless and wireline platform to be of interest to larger U.S./global telcos, and the threat of this activity could accelerate thoughts of a BCE-Telus combination, which in turn could be more palatable to regulators if they knew that the merged entity could face foreign competition.”
4. Shaw Communications Inc. (SJR): “Using the threat of interest from U.S. cablecos, the Shaw family might be able to get a takeover offer from a Canadian company that is high enough to convince them to give up control. But we aren’t sure that they want to sell at any price in the near term, and we aren’t sure that Rogers or anyone else would pay well over 10-times EBITDA [earnings before taxes, depreciation and amortization], so we don’t have Shaw in our top three on this list.”
5. BCE Inc. (BCE): “Could fetch similar interest as Telus from U.S./global telcos, but if the BCE-Telus combo unfolds we see more risk of BCE being the buyer and Telus being the seller....”
6. Rogers Communications Inc. (RCI): “Definitely has the asset mix and scale to be of interest to foreign players in our view, but we have no sense that the company/family would be a willing seller...”
7. Bell Aliant Regional Communications Income Fund (OTC:BLIAF): “Already controlled by BCE, so the M&A dynamics don’t change much in our view if foreign ownership rules change.”
8. Quebecor Inc. (IQW): “The least likely of the family-controlled companies willing to sell, in our view, and the regional concentration of assets could make it less interesting to U.S./global players. Quebecor could also be a buyer if other assets hit the auction block.”
Over at National Bank Financial, analyst Greg MacDonald has a slightly different take on which companies would benefit the most from a surge in M&A activity.
He agrees that Manitoba Telecom would be a likely target, but he doesn’t think its National Allstream division is as attractive as some may think.
“Instead, our view is that incumbents Rogers, Telus and Bell – in this order – remain much more attractive investments for any foreign owner by virtue of each carrier’s strong national wireless infrastructure assets,” he said in a note.
There’s a complicating factor here though: Mr. MacDonald noted that Canadian telecom stocks trade at a premium to their U.S. peers, especially with Canadian telecom stocks rising in 2010 and U.S. telecom stocks falling.
“For now, we maintain that in the near term there is no major probability of any cross-border M&A with U.S. carriers,” he said. “In our view, carriers such as AT&T and Verizon will more than likely take a wait and see approach on the performance of new entrants before considering an acquisition.”