Manitoba Telecom Services CEO plays down Allstream rumours

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Manitoba Telecom Services Inc.'s top executive is pushing back against accusations that the company is taking too long to update shareholders about the strategic review of its Allstream division.

"There is an update," says chief executive officer Pierre Blouin. "It is ongoing."

Mr. Blouin gave that progress report during an interview on Thursday that followed MTS's investor day event in Toronto.

Despite analyst speculation to the contrary, he gave assurances there are a number of "live options" currently being assessed.

"In our opinion, it is not taking too long," he says. "If you go back to our announcement in September, we said that review is going to take up to a year.

"We're just a few months in it and we're trying to get to the best outcome for the company and shareholders – not the fastest outcome. And, you know, for us, it will take the time that it needs."

MTS acquired Allstream, formerly known as AT&T Canada, in a deal worth $1.7-billion in 2004.

The Winnipeg-based company announced last September that it was reviewing strategic options for Allstream, including a potential sale. In announcing the move, it pointed to key changes in the foreign investment restrictions for the telecom sector.

Under new rules that took effect last year, small telcos with a market share of 10 per cent or less are allowed to be 100 per cent foreign owned.

But even before its announcement of a formal review, sources told the Globe that Allstream had been unofficially in play for months. To date, the division has failed to find a buyer.

Earlier this week, Dvai Ghose, an analyst with Canaccord Genuity, questioned whether Allstream is for sale.

"The market now believes that the $800-million-to $1-billion valuation that bulls assumed last year is unrealistic and that $300-million may be more likely, especially due to pension deficits," wrote Mr. Ghose in a research note to clients on Tuesday.

"Disappointing bids may lead MTS to pull the sale."

Mr. Ghose also suggested that "Bell and Telus are the only obvious buyers and MTS does not seem enticing for Telus."

In addition to Bell and Telus, sources have said Rogers Communications Inc. and Shaw Communications Inc. have also kicked the tires but ultimately taken a pass on Allstream. Globalive Wireless Management Corp., meanwhile, held talks with MTS in 2011.

For his part, Mr. Blouin says a sale of Allstream should not be considered a foregone conclusion: "There are multiple options on the table and you know as any other company would do, we are looking at all of them."

He declined to comment on whether the company has received any expressions of interest or firm offers. During the investor day presentation, he similarly refused to speculate when asked whether spinning off Allstream to shareholders was one of the options under consideration if the asset fails to generate an attractive bid.

As the strategic review grinds on, Mr. Blouin insists the real story is that MTS is making significant progress on Allstream's turnaround.

Allstream has now recorded nine consecutive quarters of year-over-year growth in EBITDA (earnings before interest, taxes, depreciation and amortization).

The division's EBITDA margin improved to 15.2 per cent during the fourth-quarter of 2012.

Moreover, the division is on track to becoming cash flow positive this year. That's notable improvement given that it was roughly $80-million cash-flow negative just three years ago, Mr. Blouin says.

At the same time, Allstream continues to invest in its national fibre network and plans to connect more than 300 buildings in 2013 – moves that position it generate more IP sales down the road as revenue from legacy products, like long distance, continue to decline.

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