Bell Canada to Privatize Bell Aliant

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New Tim Hortons App lets you pay from your smartphoneMONTRÉAL and HALIFAX – BUSINESS – Bell Canada is announcing the company’s decision to privatise Bell Aliant. The move will have impact in Northwestern Ontario as Bell Aliant is the owner of the Northern Tel which came out after Bell purchased the Kenora Municipal Telephone System six years ago.

There is no word from Bell Canada yet on what impact the move to privatize Norther Tel will have in Kenora or in Northwestern Ontario. The company, in a media statement are focused primarily on the changes this move will have in Atlantic Canada.

BCE Inc. (TSX, NYSE: BCE) and Bell Aliant Inc. (TSX: BA) announced this morning that BCE will privatize Bell Aliant by acquiring the interest of its affiliate’s public minority shareholders, while supporting Bell Aliant’s ongoing growth and competitiveness with significant investments in Atlantic Canada infrastructure and employment.

“Bell Aliant is a core part of BCE’s national communications operations alongside Bell Canada. Privatizing Bell Aliant enhances our broadband investment strategy and capital markets objectives while delivering great value to the public minority shareholders who have supported Bell Aliant’s success,” said George Cope, President and CEO of BCE Inc. and Bell Canada. “In line with our investment-focused strategic imperatives, BCE looks forward to continuing network and service innovation to benefit consumers and business customers across Bell Aliant’s territory.”

“This transaction is a next logical step for Bell Aliant,” said Edward Reevey, lead independent director of Bell Aliant. “A Special Committee of independent directors of Bell Aliant has conducted a thorough review of the offer and has unanimously concluded that the transaction provides attractive value to Bell Aliant’s public minority shareholders, while also providing them with an opportunity to participate in the future growth of BCE. For these and other reasons, which will be more fully detailed in the directors’ circular, the independent members of the Board of Directors unanimously resolved to recommend that shareholders accept the offer.”

“I am proud of what the team at Bell Aliant has accomplished over the last several years,” said Karen Sheriff, President and CEO of Bell Aliant. “Solid execution has positioned Bell Aliant to deliver even more value to our customers and shareholders through this transaction. As a result of the privatization, Bell Aliant will be able to combine its product and service strength, and cost management skills, with the world class communications networks and operations of Bell Canada, delivering even more value to our customers. Furthermore, Bell Aliant’s heritage of delivering value to its customers through technological innovation and strong local presence will be further strengthened by the full backing of BCE. This support will ensure that Bell Aliant maintains its leadership position as the leading customer-focused communications service provider in the markets we serve.”

The transaction enhances Bell Aliant’s ability to invest and serve customers in the Atlantic marketplace from its Halifax headquarters with further development in broadband Internet and TV services, new bundling opportunities, and next generation business services including data hosting and cloud computing.

BCE plans capital investment of $2.1 billion across Atlantic Canada over the next 5 years to enable the continued rollout of broadband wireline and wireless for consumers and business users. BCE will also continue to invest in world-leading broadband services for consumers and business customers in rural areas of Ontario and Québec currently managed by Bell Aliant. Bell Aliant’s FibreOPTM broadband fibre-to-the-home network is expected to reach 1 million premises across the Bell Aliant territory by the end of the year, delivering lightning fast Internet, the best digital TV experience and a range of business services.

BCE also today announced that the next phase of its massive national buildout of mobile 4G LTE service will be in Atlantic Canada, with more than 100 additional small towns and rural locations across the region to benefit from enhanced mobile service by the end of 2015. Additionally, Bell announced the acquisition of 2 new call centres in New Brunswick to improve customer service and bring 700 more jobs into the Bell team.

Financial and operating benefits of the transaction

BCE already controls Bell Aliant and is acquiring the remaining approximately 127.5 million common shares that are owned by the public minority shareholders. Results for Bell Aliant are already consolidated within BCE’s public financial and operational reporting alongside the results of Bell Canada. Bringing Bell Aliant wholly into BCE simplifies the company’s structure, eliminating redundant public company costs and increasing overall operational efficiency.

“Privatizing Bell Aliant within BCE supports our dividend growth model and capital investment strategies, while maintaining a strong balance sheet and strong investment-grade credit ratings with significant financial flexibility,” said Siim Vanaselja, BCE’s Chief Financial Officer. “As one of the best-run telco operators in North America, Bell Aliant enhances our EBITDA (earnings before interest, tax, depreciation, and amortization) margin, EPS (earnings per share) and FCF (free cash flow), generating attractive synergies to support BCE’s ongoing investment in communications growth services.”

BCE expects annual run-rate FCF accretion after common dividends of approximately $200 million a year. With the elimination of Bell Aliant public company expenses and other duplicative costs, BCE expects to generate approximately $100 million in pre-tax annual synergies.

Details of the transaction

Unanimously recommended to public minority shareholders by all the independent directors of Bell Aliant, the transaction will be completed by way of a formal tender offer through which common shareholders can elect to receive either (a) $31 in cash, (b) 0.6371 of a BCE common share, or (c) $7.75 in cash and 0.4778 of a BCE common share. Public minority shareholders electing alternative (a) or (b) will be subject to pro-ration such that the aggregate consideration will be paid 25% in cash and 75% in BCE common shares. The share consideration is based on BCE’s 10-day volume weighted average price of $48.66.

Creating both immediate and long-term value for Bell Aliant public minority shareholders, the transaction represents a valuation multiple of 8.3x LTM (last 12 months) EBITDA and an 11.6% premium to Bell Aliant’s 20-day volume weighted average price of $27.78.

The regular quarterly dividend that would have been payable on Bell Aliant common shares on October 6, 2014 will not be declared by Bell Aliant.

Taxable Canadian shareholders who receive BCE shares as consideration under the offers will generally be entitled to a roll-over to defer Canadian taxation on capital gains.

BCE will fund the cash component of the transaction from available sources of liquidity and will issue approximately 61 million common shares for the equity portion of the transaction, which offers Bell Aliant public minority shareholders access to BCE’s superior dividend growth potential. The BCE dividend has been increased 10 times, representing an aggregate increase of 69%, since Q4 2008 and currently delivers an approximate 5% yield. When the transaction is completed, Bell Aliant public minority shareholders will own approximately 7% of pro forma BCE common equity.

The Special Committee received opinions from its financial advisors Scotia Capital Inc. and Barclays Capital Canada Inc. that, subject to the assumptions, limitations and qualifications set out in such opinions, the consideration offered by BCE is fair from a financial point of view to Bell Aliant public minority shareholders. As independent valuator, Barclays has concluded that, subject to the assumptions, limitations and qualifications set out in its valuation, as of July 22, 2014, the fair market value of the Bell Aliant common shares is in the range of $27.00 to $31.50 per common share. The Special Committee unanimously determined that the offer is fair to Bell Aliant public minority shareholders and, on the Special Committee’s recommendation, the Board of Directors of Bell Aliant is recommending that public minority shareholders accept the offer and tender their common shares to the offer.

BCE expects the privatization transaction to be completed by November 30, 2014, subject to more than 50% of Bell Aliant common shares held by public minority shareholders being tendered to the offer, notification under the Competition Act, and other conditions set forth in the support agreement, a copy of which is available under Bell Aliant’s SEDAR profile at CRTC and Industry Canada approvals are not required because there is no change in control of Bell Aliant, and no transfers of wireless spectrum licences.

BCE will also offer holders of preferred shares of Bell Aliant Preferred Equity Inc. (Prefco) the opportunity to exchange their Prefco preferred shares for BCE preferred shares with the same financial terms as the existing Prefco preferred shares, subject to terms and conditions of the offer. Completion of the Bell Aliant privatization is not conditional upon completion of the preferred share exchange.

The Special Committee of the independent directors of Prefco has unanimously determined that the preferred share offer is fair to preferred shareholders and, on the Special Committee’s recommendation, the Board of Directors of Prefco is recommending that shareholders accept the offer and tender their preferred shares. The Special Committee has received an opinion from Scotia Capital that, subject to the assumptions, limitations and qualifications set out in such opinion, the consideration to be received pursuant to the BCE preferred shares offer is fair from a financial point of view to the preferred shareholders. Completion of the preferred share exchange offer is conditional upon completion of the common share offer, holders of at least two-thirds of the outstanding preferred shares tendering their preferred shares to the offer, and the other conditions set forth in the support agreement.

The offers are expected to be commenced in mid-August and to expire in the second half of September. Tender offer circulars containing the full details of the common share offer and the preferred share offer (together with directors’ circulars for each offer) and other related documents setting forth full details of the terms and conditions of the offers will be mailed to shareholders.

US holders of securities of Bell Aliant and Prefco should see the information under “Notice to US Securityholders” below.

Call with financial analysts

A conference call for financial analysts will be held today at 8:00 am ET. To participate, please dial (416) 340-2218 or toll-free 1-866-223-7781 shortly before the start of the call. A replay will be available for one week by dialing (905) 694-9451 or toll-free 1-800-408-3053 and entering passcode 2896556.

A live audio webcast of the conference call will be available on BCE’s and Bell Aliant’s websites. The mp3 file will be available for download on this page later in the day.

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