With its C$670 million ($585 million) bid for Glentel Inc., Canadian communications giant BCE Inc. is paying a steep premium to roll up mobile device distribution in its home country.
The takeout price of C$26.50 per share in cash and stock is more than 100% above Glentel's prior close, and values the target's equity at C$594 million. Glentel also has C$78 million in net debt and minority interests.
Shares of Burnaby, BC-based Glentel gained C$13.27, or about 104%, to C$26.02 in Friday morning trading. BCE stock rose 8 cents, or close to 0.2%, to C$47.12. Shares were down earlier on Friday.
"The valuation metrics are very high," said Macquarie Capital analyst Greg MacDonald, who values the deal at 9.6 times Glentel's projected 2015 Ebitda.
BCE chief executive George Cope said in a statement that strengthening distribution channels would accelerate its wireless growth. Glentel operates close to 500 stores in Canada that sell devices from multiple carriers. The company also has more than 700 stores in the U.S. and close to 150 million in Australia and the Philippines.
Montreal-based BCE is a powerhouse, combining telecommunications, pay television systems, TV programming, entertainment and professional sports assets.
BCE, Rodgers Communications Inc. and Telus Corp. form a "big three" that dominates Canadian wireless. Smaller carriers such as Wind Mobile and Mobilicity, which is formally known as Data & Audio-Visual Enterprises Holdings Inc., have become distant fourth-place competitors.
"One might question whether these carriers need more distribution channels to drive further growth," Macquarie analyst MacDonald said regarding BCE's purchase of Glentel.
"The more likely rationale is to lock up distribution channels before a possible fourth carrier consolidation scenario," he added, citing a potential combination of Mobilicity and Wind.
With Glentel in the hands of BCE, the analyst suggested, there would be little third-party distribution aside from large retailers such as Wal-Mart Stores Inc. (WMT) . The concentration of distribution could draw scrutiny from regulators, he said.
BCE is a prolific acquirer. In November, it closed the C$3.95 billion purchase of regional telecom and pay-TV affiliate Bell Aliant Inc. BCE paid C$3.8 billion in 2012 for Astral Media Inc., which distributes HBO Canada and other stations. BCE teamed with Rogers and Kilmer Sports Inc. in 2012 to complete the C$1.32 billion joint purchase of pro sports group Maple Leaf Sports and Entertainment Ltd., which owns National Hockey League team the Toronto Maple Leafs and the National Basketball Association's Toronto Raptors.
BCE expects to close the Glentel purchase in the first quarter of 2015.
Canaccord Genuity Corp. advised Glentel., which received counsel from Owen Bird Law Corp.
A special committee of Glentel's board retained McCarthy Tétrault LLP lawyers Clemens Mayr and Cam Belsher, Patrick Boucher, Pavan Jawanda and Laure Fouin, Gabrielle Richards and Amanda Laren, Oliver Borgers and Grant Buchanan.
Advising BCE were Blake, Cassels & Graydon LLP in Canada and U.S. counsel Sullivan & Cromwell LLP.