RE: Canaccord
TELUS* (T : TSX : $37.26), Net Change: 0.31, % Change: 0.84%, Volume: 1,035,169
To allow, or not allow? That is the question. TELUS has agreed to acquire Mobilicity for $380 million, subject to regulatory approval. Canaccord Genuity Telecommunications Analyst Dvai Ghose noted that this comes as no surprise given that The Globe & Mail reported on April 12 that TELUS was in talks to acquire Mobilicity for $350-400 million. Ghose sees this as a reasonable price for TELUS as it only really values Mobilicity’s spectrum and tax losses with no discernible value for its network or customer base. Given that: 1) Mobilicity paid $243 million for its AWS spectrum; and 2) Ghose estimates that the NPV of Mobilicity’s tax losses are well north of $100 million, he believes that this is a relatively low risk bid from TELUS, especially as the acquisition of Microcell in 2004 added tremendous value for Rogers (RCI.B) and the other wireless incumbents. The real question is whether Industry Canada and the Competition Bureau will allow an incumbent like TELUS to buy a new entrant like Mobilicity. On the one hand, Ghose believes that the Government does not want to see the death of new entrants and so may well block the deal. However, unlike Shaw’s (SJR.B) planned spectrum sale to Rogers, Mobilicity tried to build a business and failed. If it is not allowed to be sold, 250,000 customers could face service disruption and employees could lose their jobs. Thus, Ghose views this as a very different scenario than the proposed Shaw-Rogers spectrum sale. That being said, he assumes that the Government would rather have a non-incumbent third party acquire Mobilicity and so may ask Mobilicity to show through bankruptcy, whether it can attract an independent buyer before begrudgingly allowing its sale to an incumbent.