US B2B fibreco Zayo has completed its C$465m acquisition of Allstream in Canada, making it the first fibre provider to bridge both sides of the border.
US B2B fibreco Zayo (NYSE:ZAYO) has completed its C$465m (US$321.05m) acquisition of Allstream in Canada, making it the first fibre provider to bridge the US and Canada.
Boulder-based Zayo announced last November that it had agreed to buy Allstream from Manitoba Telecom Services (TSX:MBT) in an all-cash deal. The target operates a 30,000km national fibre network and provides bandwidth and telecoms services to business and public sector customers.
In a statement today, Zayo, which provides fibre and bandwidth connectivity, co-location and cloud services, said it will reorganise the Allstream business and assets into two business units. The first, Zayo Canada, will own and operate the Canadian fibre and data centre assets and represent about half of Allstream’s C$600m (US$414.2m) revenue base. The second unit will comprise Allstream’s voice, unified communications and small enterprise businesses and retain the Allstream brand.
Zayo CEO Dan Caruso (pictured) said “the new structure will enable both business units to focus on their customers in order to grow and innovate”.
Allsteam president Michael Strople will serve as managing director of both units and report to Karl Maier, president of Zayo International. Both Strople and Maier will lead the restructuring.
Zayo said Zayo Canada aims for a high single-digit growth rate with an adjusted EBITDA margin of less than 40%.
Zayo, which says its network in North America and Europe now stretches 110,000 route miles, said the price tag reflects a pre-synergised adjusted EBITDA multiple of less than five times.
Last November, the company said Allstream generates C$100m (US$69.03m) in EBITDA.
Zayo’s exclusive financial adviser on the deal was RBC Capital Markets and its legal advisers were Gibson Dunn & Crutcher and Borden Ladner Gervais.
Manitoba’s financial advisers were CIBC World Markets and TD Securities, while its legal adviser was Stikeman Elliott. Drysdale Forstner Hamilton Public Affairs acted as public affairs and communications counsel.
US$400m loan
Zayo will fund the deal with a US$400m term loan tranche under its existing credit agreement. Also announcing the completion of the loan transaction today, the company said it priced at 99.0 and will bear interest at a rate of Libor plus 3.5%, with a minimum Libor rate of 1%.
Morgan Stanley was the lead arranger on the loan deal.
Zayo, which has a market cap of US$6.03bn, reported revenue of US$366.8m for the three months ended 30 September 2015, adjusted EBITDA of US$215.4m and total liabilities of US$4.92bn.
MTS refocuses
MTS president and CEO Jay Forbes said the company is pleased to have completed its planned exit from Allstream with the value of the business fully realised.
“With this exit from Allstream, MTS is in an improved position to continue our transformation to become a true, customer-first organization, leveraging our tremendous assets and unique position to deliver strong results in a competitive market,” he said.
MTS expects to receive net proceeds from the sale of C$420m, about C$15m more than it would have in the failed sales attempt in 2013. The federal government blocked the planned sale to Egyptian investment firm Accelero Capital on national security grounds.
The Winnipeg-based company said it is finalising its options for the proceeds, which include retiring debt incurred to make a pension funding pre-payment and spectrum purchases last year. It will provide specific details on how the proceeds will be used on 4 February, when it releases its Q4 2015 results.
Last year, MTS said it would record a loss of up to C$90m on the sale of Allstream, which it bought in 2004 for C$1.7bn.
Forbes said the company’s multi-year transformation programme, launched last year, continues, with early initiatives focused on funding the process.
“Our previously announced refresh of the MTS brand is one of several transformation program initiatives and will roll out into the market shortly,” he said.
