On the Deal Q&A: The Juggling Act

With so many balls in the air, Bell’s acquisition of MTS can be summed up in one word: complex
Bell’s acquisition of Manitoba Telecom Services (MTS) was the first test of how committed the Liberals are to the previous government’s four-carrier policy. Here’s how lawyers executed the lengthy and complex transaction through at least one sleepless weekend.

LEXPERT: First off, congratulations on closing in March after an intense 10-month regulatory review. What is your take on the final outcome?
Mirko Bibic (Executive Vice President & Chief Legal and Regulatory Affairs Officer, Bell Canada/BCE Inc.): Ultimately, it’s a great deal for the people of Manitoba, including customers and employees. The required divestiture of customers, retail stores and spectrum is a reasonable outcome in the circumstances, and should preserve, if not increase, competition in the province.
Brian Facey (Blake, Cassels & Graydon LLP, for Bell): The remedy to Xplornet reflects a balance between commercial realities and Bell’s creative approach to getting issues resolved. Credit the Bureau for being open to a solution that allowed a great deal for Manitoba that will increase investment and efficiencies and benefit consumers.
Paul Collins (Stikeman Elliott LLP, for MTS): Once the deal was signed, what ensued was a substantial, co-ordinated effort amongst a number of parties and their counsel to “pull in the same direction” in order to secure the required regulatory clearances. The result, which involved a substantial remedy to Xplornet as well as a previously negotiated divestiture of subscribers to Telus, ultimately satisfied the authorities.
Robert Hansen (McCarthy Tétrault LLP, for Bell): The approval process did indeed involve extensive collaboration amongst lawyers from both parties.

LEXPERT: But let’s go back to the beginning.Why did MTS want to sell?
Bibic: Competition in telecom in Canada is quite vigorous and, given massive investments that must be made every year in wireless and wireline networks, it is evident that scale is required to keep up and remain competitive. This is why Bell was an ideal buyer for MTS and was able to commit to investments in the province at a level that a standalone MTS never would have made.

LEXPERT: I understand that the initial negotiation was completed within two weeks, and involved a highly competitive bidding process?
Facey: Yes, the deal involved some very condensed negotiations, and a very long sleepless weekend. But I think the internal legal and business teams were always driving towards a transaction that would benefit Manitobans and provide them with significant investment in its networks; and I think both sides saw that as a key benefit of the transaction which allowed everyone to move quickly in a very tight timeframe.
Hansen: I think BCE’s preparedness and ability to move quickly after formally approaching MTS was key to getting a deal done. It was impressive to see the BCE machine mobilize. Its various teams worked in a very coordinated way and all maintained a laser focus on the key objectives and critical issues. The short timeframe for negotiating and signing of the deal wasn’t easy on the lawyers, but we managed to hold the line.

LEXPERT: What was the dynamic of the negotiations?
Hansen: The fact that this transaction involved negotiations and various deals amongst very sophisticated parties who are fierce competitors brought an interesting dynamic. In the end, each of the parties was able to find a deal that worked for each of them. Negotiations were challenging yet productive; they were tense at times but both sides were reasonable.
Facey: I have to say, because of the sophistication of the parties, things never got out of hand or disrespectful.

LEXPERT: Was it difficult to combine the companies’ operations and infrastructure?
Norman Snyder (Taylor McCaffrey LLP, for Bell): We found that it was often quite challenging to find a way to meet the commercial and tax objectives in the face of specific corporate restrictions which arose as a consequence of applicable legislation. For instance, as local counsel in Manitoba we had to consider the structure and how it was to be implemented in the context of specific Manitoba corporate and consumer protection legislation.

LEXPERT: Some commentators have called the deal a strike against consumers that could increase wireless pricing and consolidation in the industry. How would you respond to this?
Facey: The transaction was never about anything other than improving networks and customer service in Manitoba. To bring down market share Bell agreed to divest some subscribers to Telus. Remember Bell and Telus were very small in Manitoba. The deal actually de-concentrated the marketplace. I think the benefits will be born out over time. People are naturally sensitive about consumer products like telecom because it’s so central to our lives these days, so it attracts a lot of informed and not-so-informed commentary. At the end Xplornet agreed to enter the market as well, so it’s clear the Bureau did its job.
Bibic: Manitoba customers will benefit from the scale, reach and financial strength that Bell MTS brings to the table. The wireless industry is not more consolidated as a result of this transaction. It’s actually the opposite I’d say. Among other things, Telus and Bell will now be able to compete in rural Manitoba where people’s choices were formerly limited to Rogers and MTS, and Xplornet will build a third wireless network in the province hence increasing network-based competition in wireless.

LEXPERT: What was the biggest challenge in executing? The most memorable aspect?
Sean Vanderpol (Stikeman Elliott LLP, for MTS): The deal was complex from a regulatory perspective, with a lengthy period of time between final shareholder/court approval and the final regulatory approvals. Executing a public transaction over such a lengthy period of time posed a substantial challenge, as all the pieces needed to come together within the overall deal framework that shareholders had approved. It was a testament to the clients that they were able to persist and achieve the result that they did; for counsel it was very rewarding.
Hansen: A big challenge in this deal for BCE was juggling separate negotiations with the regulators, Telus, Rogers, Xplornet and MTS. With Telus, BCE was in the odd position of negotiating a divestiture of MTS assets that it didn’t own yet. It took around-the-clock negotiations in the weeks leading to closing for BCE to find common ground with each party.
Facey: As lawyers, it was extraordinary to get a deep understanding of how important sophisticated communication networks are to innovation and the broader economy. Understanding how communications are one of the backbones of our economy is something I will never forget.