TORONTO – In a move designed to give it a huge jump-start into the local telephony market, Rogers Communications announced today a friendly takeover of Call-Net Enterprises, whose brand is Sprint Canada.
The all-stock deal has been recommended by the Call-Net board. Surf back to www.cartt.ca for more on this deal once the principals meet the media.
“Under the terms of the agreement, Call-Net Common and Class B shareholders will receive a fixed exchange ratio of one RCI Class B Non-voting share for each 4.25 outstanding shares of Call-Net, representing a fully diluted equity value of approximately $330 million,” reads this morning’s press release.
“In total, it is expected that upon closing of the transaction approximately 9.0 million RCI Class B Non-voting shares will be issued representing approximately 3.2% of the pro forma shares outstanding. Based upon the May 10, 2005 closing price of the RCI Class B Non-voting shares, the transaction values Call-Net at approximately $8.71 per share. At March 31, 2005, Call-Net had senior secured notes due 2008 of $269.8 million outstanding and cash and short-term investments of $79.6 million.
“This acquisition will significantly jumpstart and expand our ability to provide customers with a full suite of service solutions that deliver the simplicity, quality and value they want in one package, on one bill, from one provider," said Ted Rogers, President and CEO of Rogers Communications Inc.
It also makes Rogers a national player instantly with customers across the country, competing not only with Bell Canada but other cable companies offering local telephony in many markets. As Rogers rolls out its voice over Internet product, existing Sprint customers in its cable territories will be migrated onto the cable platform.
The move will also give Rogers a significant number of corporate telephony customers, too.
“This positions us immediately to offer primary line telephone service across our residential and business bases of wireless and cable customers. It also provides a substantial additional base of customers to cross-sell our portfolio of communications and entertainment products and a skilled and knowledgeable employee group with strengths in telephony sales and marketing,” added Rogers.
“As Rogers’ cable telephony service is deployed on a market by market basis, we will be able to migrate Call-Net customers in our Rogers Cable territory to our advanced digital cable telephony platform when advantageous.”
“This is a terrific day for Call-Net customers, shareholders, employees, and for Canadian telecom in general," said Bill Linton, president and CEO of Call-Net. "We share a common heritage with Rogers as a catalyst in bringing competition to the Canadian communications markets. By joining our business with one of the foremost Canadian names in communications, entertainment and information services, Call-Net customers will have a greatly enhanced selection of advanced services to choose from in their homes and businesses and the ability to enjoy the convenience of complete multi-product bundles from a single provider. The combination of Rogers’ innovative offerings and high quality wireless and cable networks will bring tremendous additional choice and value to our customers."
"This transaction offers an opportunity to acquire a significant customer base and telecom assets that together provide network and operating cost synergies and sales opportunities, which makes the transaction attractive economically as well as strategically," added Ted Rogers. "This will complement our deployment of an advanced broadband IP multimedia network to support digital voice-over-cable telephony and other new voice and data services across the Rogers Cable service areas and expand the base of customers that will benefit from them."
Call-Net, through its Sprint Canada subsidiary and with approximately 1,800 employees, provides home phone and local business service, IP data, long distance and wireless services to approximately 600,000 consumers and business customers across Canada, the majority of which are concentrated in areas served by Rogers Cable. Call-Net owns a 14,000 route kilometre North American transcontinental fibre optic broadband network that spans across Canada and connects all major cities and into main U.S. voice and data network access and peering points, all of which Rogers will acquire.
Call-Net also has more than 150 central office co-location points in all of Canada’s largest markets as well as options to acquire significant CLEC assets, including extensive local fibre in eastern Canada, most of which are within Rogers Cable’s serving areas. Call-Net’s wireless services are offered to its customers, alone and in bundles with other voice services, through a wholesale agreement with Rogers’ Fido division.
Rogers anticipates that it will realize cost savings from the transaction, including reduced payments to incumbent and other telecom providers. The reduction in costs currently incurred by Sprint Canada, Rogers Wireless and Rogers Cable include the areas of local and long haul interconnection, the rental of local loops and transport, Internet and other data transport costs, and the costs associated with the transport of local and long haul wireless traffic.
The boards of directors of Rogers and Call-Net have approved the transaction, with the members of the Call-Net Board having agreed that the transaction is fair to their shareholders and that they will recommend that the Call-Net shareholders approve the transaction at a Call-Net shareholder meeting expected to be held before June 30, 2005.
BMO Nesbitt Burns is acting as financial advisor to Call-Net on this transaction and has provided Call-Net’s Board of Directors with a fairness opinion that the consideration to be received under the Plan of Arrangement is fair, from a financial point of view, to the shareholders of Call-Net. Scotia Capital is acting as financial advisor to Rogers on this transaction.
Subject to certain customary conditions, including among others, regulatory approvals and acceptance by Call-Net shareholders representing at least two-thirds of the votes cast in respect of the Plan of Arrangement, this transaction is expected to close during the third quarter of 2005. The transaction is expected to be accounted for as a purchase and it is anticipated that the share-for-share exchange will be structured as tax-free to eligible Canadian shareholders.
Call-Net has agreed not to solicit or take certain other actions with respect to any competing proposal, and in addition has agreed to pay Rogers a termination fee of $10 million under specified conditions.
A proxy circular relating to the transaction is expected to be sent to Call-Net’s shareholders prior to the end of May 2005. Investors are urged to read the proxy circular regarding the transaction when it becomes available, as it will contain important information.
