Wind has new merger option after dropping out of wireless auction

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It is, perhaps, the thinnest of silver linings for Wind Mobile.

Now that Wind has dropped out of a key wireless spectrum auction, it is free to pursue changes to its ownership structure.

For optimists, this suggests there are slightly improved odds of a merger between Wind and Mobilicity – notwithstanding any financing issues, of course.

Here's why: The federal government imposed strict rules for bidders in the 700-megahertz auction. Essentially, Wind, like other registered participants, was prohibited from being acquired by, or merging with, non-bidders after Jan. 4. That ban would have remained in effect until Wind made final payments for its spectrum.

That means that although Wind could have still pursued a takeover of Mobilicity (a non-bidder) if it had remained in the spectrum auction, a merger of the two startups – which, according to Industry Canada's auction rules, changes Wind's ownership structure – would have been forbidden.

(Mergers and acquisitions involving bidders, meanwhile, have been banned since carriers registered for the auction last September to prevent collusion.)

Now that Wind is no longer an auction participant – and it's clear that its foreign backer is not interested in funding more spectrum purchases – a merger between Wind and Mobilicity might make more sense than Wind trying to purchase Mobilicity outright.

Even so, there are some key hurdles for the companies to overcome before a merger deal can be reached.

1. First, there is the challenge of determining the relative enterprise values of each company. Sources have previously said this has been a sticking point in prior talks.

2. If the parties can accomplish this, they must then figure out how their respective investors would fit into any combined company. That includes determining the number of shareholders and their respective equity stakes, while also figuring out how much money debtholders are owed.

3. Then the real haggling would begin over allocating rights to equity and debtholders. That could determine who has the authority to make major decisions for the combined company, such as appointing senior executives, and who has veto power.

None of these issues are easy to resolve. Pessimists stress that if Wind and Mobilicity have failed to reach consensus in the past, there's no guarantee they will do so now.

For its part, Mobilicity has been clear that it is committed to completing a transaction "which has the support of all of its key stakeholders, including its employees, creditors, noteholders, service and network providers."

If Mobilicity's sales process only results in dud offers, it plans to ask an Ontario court to force the sale of its licences to Telus Corp., which has twice offered to pay $380-million.