BCE Inc.’s move to acquire MTS is impressive, says Echelon

Echelon Wealth Partners analyst Rob Goff is giving the thumbs up to BCE Inc.’s (BCE Stock Quote, Chart, News: TSX:BCE, NYSE:BCE) acquisition of Manitoba Telecom (MTS).

Yesterday, BCE announced it had reached an agreement to acquire MTS for approximately $3.9-billion. BCE boss George Cope commented on the deal.

“Welcoming MTS to the Bell group of companies opens new opportunities for unprecedented broadband communications investment, innovation and growth for urban and rural Manitoba locations alike,” he said. “Bell is excited to be part of the clear growth opportunities in Manitoba, and we plan to contribute new communications infrastructure and technologies that deliver the latest wireless, Internet, TV and media services to residents and businesses throughout the province. “Bell and MTS have a shared legacy of service and innovation that spans more than a century. We are honoured to join with the MTS team in this all-Canadian transaction to deliver the benefits of new infrastructure investment, technology development and the best of broadband communications to Manitobans.”

Goff says the deal will be a financially accretive, near-term EV/BITDA neutral acquisition that is strategic and will bring greater scale and coverage to BCE.

“We are impressed with the strategy and tactics of BCE’s move to acquire MTS. With the acquisition expected to be FCF positive upon close, the strategic merits are a clear upside,” says the analyst. “We are further encouraged by BCE’s positioning of the deal to ensure its success. The agreement to sell TELUS (T-T, $39.69, Buy, PT $44) one-third of the MTS mobile subscribers and retail outlets suggests that TELUS will not mount a competing bid while the move meshes with the regulators’ motivation to build competition. BCE plus two-thirds of the MTS Mobility subscribers would be at roughly a ~40% market share below the ~50% share of MTS Mobility on a standalone basis. On a pro-forma basis, TELUS would become a significantly stronger competitor in the market with ~27% of the market with Rogers at ~30% share.”

In a research update to clients today, Goff maintained his “Hold” rating on BCE, but raised his one-year target price on the stock from $60.00 to $62.00, implying a return of 9.8 per cent at the time of publication.