AT&T Canada, MetroNet in C$7 billion merger
By Lydia Zajc
TORONTO, March 4 (Reuters) - AT&T Canada Corp. and MetroNet Communications Corp. <MNCb.TO> <METNF.O> said on Thursday they agreed to a C$7 billion (US$4.6 billion) merger, creating what is expected to be a formidable new coast-to-coast competitor in Canada's fast moving phone market.
The new company, to be called AT&T Canada Corp., will have annual revenues of about $1.4 billion. With 4,000 employees and C$3.5 billion in assets, the entity will combine AT&T Canada's customer base, long-distance network and brand recognition with MetroNet's telecom facilities, data networks and more than C$900 million in cash to expand.
In the first phase of the merger deal, the reborn AT&T Canada will issue shares and be publicly traded on the Toronto Stock Exchange. The firm will be indirectly owned 69-percent by MetroNet shareholders and 31-percent by AT&T Corp. <T.N>.
Currently AT&T Corp. has a 33-percent stake in AT&T Canada, the maximum allowed under Canadian foreign ownership rules. It has been seeking a domestic partner to take up a 67-percent stake formerly held by three Canadian banks.
"We think we have a great fit," MetroNet's Chief Executive Craig Young told a press conference. The companies expect the deal to close by the end of June.
The second phase of the plan is a deferred buyout. Parent AT&T Corp. has agreed to eventually acquire, or arrange for another entity to acquire, the 69-percent stake in the new AT&T Canada, depending on foreign ownership deadlines. Currently the Canadian regulator allows foreign companies to own a maximum of one-third of such industries.
Under the buyout deal, AT&T Corp. will pay former MetroNet holders at least C$75 per share or fair market value, whichever is greater.
On the Toronto Stock Exchange, MetroNet shares rose C$4.35 to close at C$70.35.
AT&T plans to pay for the shares in cash, stock or a combination of both. The price will depend on the timing, with AT&T paying more the longer it waits until the deadline of June 30, 2003. After that, the shares will be auctioned off.
Both companies agreed not to pursue any other potential deals, and MetroNet will pay AT&T C$75 million if the arrangement falls through.
The merger, approved by both boards, still needs to be sanctioned by MetroNet shareholders, regulators, the courts and is also subject to other customary conditions. MetroNet stakeholders will be asked to rubber stamp the deal at a May meeting.
Once amalgamated, the new company will still be smaller than telecommunications conglomerate BCE Inc. <BCE.TO> and its telephone arm Bell Canada, analysts said.
Ian Angus, head of Angus Telemanagement Inc., said the ownership shuffling seems to be an arrangement in order to comply with ownership rules set by watchdog Canadian Radio-Television and Telecommunications Commission.
With this stroke AT&T Canada, which long ago unveiled its intention to become a full-service telecoms provider in Canada, folds in local fiber network facilities in major Canadian cities and solves its knotty ownership problem, Angus added.
"It certainly makes them a major national player," Angus said. Furthermore, the merger creates a three-way fight among AT&T Canada, Bell Canada, and Sprint Corp. <FON.N> affiliate Call-Net Enterprises Inc. <CN.TO>, Angus noted.
BCE, which has C$27 billion in annual sales, C$10.6 billion of which is at its Bell Canada unit, has a new national fiber optic business network and alliances with eastern seaboard telephone companies in which it has stakes. Bell offers local phone service only in Ontario and Quebec, but has 64.3 percent of Canada's long distance market.
Bell Canada will be looking for a partnership in its weakest area, the West, Angus said.
Shares in Canada's cable and mobile phone king Rogers Communications Inc. <RCIb.TO>, which owns 12.5 million shares in MetroNet, rose C$1.65 to C$25.35 in heavy dealings on Toronto's stock market.
($1=$1.52 Canadian)
20:51 03-04-99
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