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Telus, the number two phone company in Canada, has announced it will enter the auction to take over its bigger rival BCE, potentially testing the federal government’s policies on competition in the telecommunications sector.
Any merger between the two companies would need government approval because the collective entity would control much of the national phone market. A combined Telus-BCE would be worth more than C$50bn and would control the sector, with a 60 per cent share of the mobile market, well ahead of nearest rival, Rogers.
Telus, based in Vancouver, dominates phone services in western Canada, while BCE, via its Bell Canada unit, is the biggest provider in Ontario and Quebec.
As an industry bidder, Telus would be able to extract unrivalled synergies, estimated at an annual C$800m to C$1bn, by merging their traditional fixed-line businesses.
The other expected bidders for BCE are a group that comprises the Canada Pension Plan Investment Board, along with Caisse de Dépôt et Placement du Québec, and buy-out firms Kohlberg Kravis Roberts and Onex Corp; Ontario Teachers Pension Plan and US company Providence Equity Partners; plus a consortium led by buy-out firm Cerberus that has also been drumming up Canadian investors, including Hospitals of Ontario Pension Plan, Hong Kong-Canadian billionaire Richard Li, Manulife Financial, and CanWest Global Communications.
All bids for BCE must be in by the end of next week.
Consumer groups have already raised concerns that a Telus-BCE combination would hinder competition in the industry and keep prices high.
Any deal would have to win regulatory approval from the Canadian Radio-Television and Telecommunications Commission (CRTC).
Moe Tanabian, a principal with Interactive Broadband Consulting Group, a broadband industry advisory firm, said: “My opinion is that regulators are unlikely to go through with this, for the sake of competitiveness of the market.”
As yet, the government has voiced no objections as word of the potential deal spread.
Combining the two companies would satisfy the widespread desire to keep the company Canadian owned and operated.
“It would be an all-Canadian solution for both immediate and long-term value creation, while ensuring a vibrant player continues in this increasingly competitive industry,” Darren Entwistle, Telus chief executive, said yesterday.
The potential deal is comparable to Air Canada’s controversial takeover of rival Canadian Airlines in early 2000, which also had to overcome a number of antitrust hurdles.