Mobilicity Media Scrum 062415

June 23, 2015

Deal has already been approved by Industry Canada
Posted with permission from The Globe and Mail

An Ontario court has approved a deal for Rogers Communications Inc. to buy Mobilicity in a $465-million sale.

The Globe and Mail reported Tuesday evening that sources familiar with the negotiations said the small wireless carrier, which has been under creditor protection since September, 2013, had accepted the agreement after weighing competing bids from Rogers and Telus Corp.

Bill Aziz, Mobilicity’s chief restructuring officer, said in an affidavit that he understands the agreement has the support of “substantially all of [Mobilicity’s] secured debt holders.”

The filing said services for Mobilicity subscribers will continue uninterrupted. The carrier offers discount wireless services and has customers in Toronto, Ottawa, Calgary, Edmonton and Vancouver.

The company’s main asset is its spectrum – the airwaves used to build cellular networks – which it purchased for $243-million in 2008. The federal government must approve transfers of spectrum and has previously blocked Mobilicity’s attempts to sell its licences to Telus, one of Canada’s three largest wireless carriers. Telus offered $380-million in its original 2013 deal and $350-million in a deal last year.

Rogers said Industry Canada has already approved the deal in a press release Tuesday.

The deal includes the transfer of some cellular spectrum to new entrant carrier Wind, which is believed to be a factor in the federal government’s willingness to approve a transaction at this time. “Following the acquisition of spectrum from Shaw and Mobilicity respectively, Rogers and Wind will undertake an AWS-1 spectrum swap in Southern Ontario to create contiguous spectrum for Rogers,” the company said in a release. “Rogers will also divest certain non-contiguous AWS-1 spectrum to WIND Mobile in BC, Alberta, Saskatchewan, Manitoba and Northern Ontario and Eastern Ontario.”

As part of the deal, Rogers will also pay $100-million to complete an option to purchase unused spectrum licences from Shaw Communications Inc.

Rogers and Shaw struck a broader deal that included the option in 2013 but have to date been unable to win government approval for the spectrum transfer. According to one source, Rogers had been under pressure to get approval for that option as it is set to expire soon.

Rogers said in its release the purchase price is $440-million, but the company is also assuming $25-million in net negative working capital, leaving the total consideration for the deal at $465-million. The purchase price is offset by tax losses valued at approximately $175-million which Rogers will acquire, the company said.

“The transaction with Rogers provides the best possible outcome for Mobilicity’s customers, dealers and employees,” Anthony Booth, president of Mobilicity said. “Rogers ensures certainty of service for Mobilicity customers, provides a great network, national coverage and high quality products and services. At the same time, Mobilicity employees will have the opportunity to work at a great Canadian company in Rogers.”

Ottawa’s policy on the wireless industry has been aimed at encouraging a fourth carrier in every region to give consumers an alternative to the Big Three and the government has said it would not approve deals that resulted in an undue concentration of airwaves in the hands of Canada’s dominant players.

Yet, the landscape has shifted thanks to recent policy changes allowing for more spectrum to be put to mobile use, as well as three public auctions in little more than a year plus the 2008 auction that first reserved airwaves for new entrants.

While Canada’s dominant carriers together held 98 per cent of available mobile spectrum in 2006, Industry Minister James Moore has said he expects new players to control 25 per cent by this summer. Wind Mobile Corp. has also emerged as a more viable competitor in recent months, with new ownership, a new CEO and a swath of new airwaves it purchased for a low price.

Mr. Aziz stated in the affidavit, “It is my understanding, given recent developments in the Canadian wireless industry and specifically recent auctions of spectrum, that Industry Canada no longer has the same concerns it once did about ‘undue spectrum concentration’ among certain wireless carriers in Canada.”

“We’re pleased to have worked with the government to put this unused valuable resource to work,” Rogers CEO Guy Laurence said in the release. “We got the spectrum we needed where we needed it for our customers and this keeps Rogers in the leading competitive position across the country.”

Telus, which has been pursuing Mobilicity for more than two years, is said to have offered more than Rogers, according to one source, and could seek to challenge the deal in court.

However, Mobilicity’s creditors felt the Rogers deal was more likely to be approved by the federal government.

Mr. Aziz said Mobilicity has been in continuous discussions with potential buyers, including Rogers, for the past two weeks, a process that included multiple offers and counter-offers. He said the company was aware that Rogers needed to conclude a transaction by Wednesday, June 24 due to “other related dealings it had.”

Mobilicity therefore asked its suitors to provide their last and final offers by 10:30 p.m. Monday. Stakeholders considered the options into the night, held further discussions with the bidders and finally, the company’s board approved the Rogers deal on Tuesday.

Mr. Aziz said the carrier has outstanding secured and unsecured debt totalling approximately $600-million, including accrued interest and financing costs. The company’s original equity investors also invested approximately $250-million.

Funds from the proposed sale will be used to fully repay the company’s secured debt and repay its unsecured creditors on a pro rata basis. However, a portion of Mobilicity’s first lien bonds, which are held by Catalyst Capital Group Inc., will remain outstanding, Mr. Aziz said. The motion materials include an agreement between the company and Catalyst that was struck on Tuesday and filed with the court in confidence.

Rogers will assume Mobilicity’s outstanding debts to its trade creditors — such as suppliers and landlords – as well as its obligations to employees and dealers.

Representatives for Mobilicity, Rogers and Telus all declined to comment on the developments Tuesday evening before the court filing.

Mobilicity had 157,000 subscribers as of the end of April. In addition to its spectrum licences, it is also valuable to Rogers for its tax losses, which stood at $567-million as of the end of 2013.

Mobilicity will first seek the approval of the Ontario Superior Court judge who has been presiding over its creditor protection proceedings under the Companies’ Creditors Arrangement Act. It is then expected to seek approval from Industry Canada.

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Photo credit: Joel Shaffer, Longview Communications Inc.