Bell Canada Renews Astral Bid

Canada’s largest telecommunication company BCE Inc. (BCE - Analyst Report) has submitted a renewed bid to buyout Montreal-based Astral Media for $3.38 billion. The deal, which is subject to heavy scrutiny from the Canadian-Radio-televison Telecommunications Commission (CRTC), will make BCE an undoubted leader in the media space in Canada.

The amended agreement remains the same, thereby entailing BCE to acquire all Class A non-voting shares of Astral for about $50 and Class B Voting shares for $54.83 aggregating to $3.38 billion.

The acquisition will be funded through a combination of cash and equity with cash representing nearly 75% of the deal, while the remaining 25% through BCE common equity shares. The closing date of the transaction has been extended till June 31, 2013 with both Astral and BCE having the right to further extend it till July 31, 2013.

Earlier, the Canadian Radio-television and Telecommunications Commission (CRTC) rejected the deal citing that it would result in concentration of too much power in the hands of Bell Canada in the broadcasting sector. Astral is Canada’s largest pay and specialty TV broadcaster in Canada and has 84 radio stations and 25 television stations including the very popular The Movie Network and HBO Canada.

In Canada, BCE is already the largest internet service provider, the second largest wireless service provider and the third largest television distributor. The Astral transaction would further add 107 radio stations, 49 specialty television stations and 2 national English language television stations to BCE’s portfolio. The buyout will increase BCE’s market share of English-language TV to 45% and French language TV services to 35% approximately.

It is believed that the regulator could approve the deal with conditions, as the acquisition would provide a monopoly advantage to Bell Canada. The buyout is also envisioned to reduce competition in a host of related services, such as Internet and wireless, by raising the cost of services in the Canadian market.

BCE has argued that the revised deal addresses CRTC’s concerns by auctioning a number of Astral’s English broadcast assets that will allow it to overcome regulatory hurdles. The company further added that the deal will allow it to compete better with the U.S. company Netflix Inc. (NFLX - Analyst Report) in the Video streaming segment.

We believe the deal will not only make BCE an integrated telecom and media giant but will also place it in a much better position to compete with its rival Videotron cable service and TVA television network.

We maintain our long-term Neutral recommendation on BCE Inc. The company also retains a Zacks #3 Rank, implying a short-term Hold rating.