TELUS Corp T.T

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Here' s the report from 10:20 yesterday so the target change must have been overnight. GLTA

June 16, 2022

TELUS Corporation
TELUS Health Announces Proposed Acquisition of LifeWorks

TSX: T | CAD 29.36 | Outperform | Price Target CAD 37.00

Sentiment: Neutral

2TELUS Health acquires Lifeworks for $2.9B. TELUS Health announced the proposed acquisition of LifeWorks for $2.9B including the assumption of $600MM in net debt. The purchase price will be paid 50% in cash and 50% in TELUS shares (38MM at a reference price of $31.01). The deal translates to a $33.00/share offer price representing an 89% premium to LifeWorks' 20- day weighted-average closing price. The acquisition is expected to close in and around Q4/22. The transaction is subject to approval by two-thirds of LifeWorks' common shareholders with a Special Meeting to take place no later than August 5, 2022 (the transaction has been approved by LifeWorks' Board of Directors). There is a break-fee payable to TELUS of $94MM and reverse break-fee of $140MM (management sees no concentration/regulatory hurdles).

• Strategic rationale consistent with the long-articulated TELUS Health growth strategy and playbook. We believe this acquisition is consistent with the growth strategy and playbook that has been articulated by TELUS Health and TELUS management over the past few years. Specifically, LifeWorks brings to TELUS Health the combination of increased scale and scope (revenues from ~$500MM-$600MM to ~$1.6B, lives covered from 22MM to over 50MM), a greater geographic presence outside of Canada (pro forma revenues are 72% Canada, 23% U.S. and 5% international) and a more comprehensive suite of digital-first products and services providing an all-in-one health and wellness solution for employers in a globally homogenous health vertical with structural tailwinds (employee retention, lack of government funding, COVID-19, etc.). In addition, we believe this acquisition firmly puts TELUS Health on a path to an eventual crystallization reflecting its strategic and financial benefits.

• Financial and valuation impact is not overly material but accretive over time with integration/execution on synergies. The $2.9B purchase price represents a 2021 EV/EBITDA multiple of ~15x with LifeWorks generating 2021 revenues and adjusted EBITDA of $1,019MM and $195MM (representing approximately 6% and 3% of TELUS' 2021 consolidated revenues and adjusted EBITDA, respectively). Over a 3-5-year period, management expects to realize the full run-rate of $170MM-$200MM in synergies (two-thirds revenues including telecom, one-third operating cost) through significant cross-selling (TELUS International and TELUS Health) and enhanced customer experience opportunities and cost-efficiencies (with one-time costs of approximately $50MM). Pro forma with synergies and making certain margin assumptions, the transaction equates to a multiple of ~10x. Balance-sheet-wise, the acquisition is expected to add 0.16x leverage on a pro forma basis, which would increase forecast 2022E net debt/EBITDA from 3.18x to 3.34x (essentially unchanged YoY versus 2021). Management expects to fund the cash component with available liquidity while maintaining the commitment to +7%-10% annual dividend growth through 2025.