Shaw Communications Inc. is finally poised to enter the wireless business, with a $1.6-billion deal to buy Toronto startup carrier Wind Mobile Corp.
Calgary-based cable operator Shaw announced the transaction on Wednesday evening, noting that while the deal still requires approval from the federal government and the Competition Bureau, it expects it to close during the third quarter of fiscal 2016 (the first half of the calendar year).
Wind, which operates in urban areas in Ontario, British Columbia and Alberta, has 940,000 subscribers, and Shaw said the small carrier is expected to generate $485-million in revenue and $65-million in earnings before interest, taxes, depreciation and amortization (EBITDA) in 2015.
"Wireless was a missing piece," Shaw CEO Brad Shaw said in an interview, adding that now the company will be able to match its main rival, Telus Corp., which already has one of the largest cellular businesses in Canada and competes with Shaw for television and Internet customers.
"Now we're on the same page, we're at the same level ... and we've improved our competitive position in Western Canada just by doing this deal, let alone the opportunity in the East."
Mr. Shaw clearly relishes the opportunity to compete with Telus on the wireless front, stating, "We're no longer the incumbent that's going to sit here and try to protect his margin and his revenue and free cash flow. We're going to be the small guy, come in, guerrilla, tactical, and just do it a little differently.
"I kind of look at it as similar to what Telus did to us," he added, referencing Telus's entry into the television market in Alberta and B.C. through its IPTV (Internet protocol television) offering.
Wind has provided a lower-priced alternative to Canada's Big Three carriers – Telus, BCE Inc. and Rogers Communications Inc. – and consumers will be wondering whether that will evaporate with this sale.
Mr. Shaw said as the wireless company improves its coverage and upgrades to LTE (fourth-generation), "I see pricing somewhat discounted, but probably closer to the incumbents as we go forward, which allows us to increase ARPU [average revenue per user]. But listen, growth is very important to us and that's going to be a key driver, as well as making sure consumers feel there's value."
The company has not made any decisions on whether to use its own brand for the wireless business, but initially it would maintain the Wind brand, he said.
After buying licences for wireless airwaves in a 2008 public auction, Shaw conducted a strategic review and abandoned plans to enter the wireless business in 2011. Since that time, it has instead been building out a WiFi network in public places in a bid to increase its value proposition to home Internet customers and now has 75,000 hotspots across Western Canada.
Shaw struck a deal to sell its spectrum licences to Rogers in 2013, but that sale was only completed this past summer as part of a broader transaction that included Rogers' purchase of struggling new wireless entrant Mobilicity and divesting of a large swath of spectrum to Wind.
Wind's chief executive officer, Alek Krstajic – who previously launched the third new entrant, Public Mobile, and sold it to Telus – will continue to run the wireless business, which Mr. Shaw said will remain based in Toronto. Last week, Wind announced it had secured up to $425-million in new financing from three major Canadian banks, allowing it to refinance high-yield debt at a lower rate, as well as fund improvements and expansion of its cellular network.
The company's former owner, Amsterdam-based VimpelCom Ltd., sold Wind to a consortium of financial investors in September, 2014, for $135-million, as well as the assumption of debt obligations. Sources said the total value of the deal was closer to $300-million.
Wind's shareholders after that deal included Toronto's West Face Capital Inc. and California-based hedge fund Tennenbaum Capital Partners, as well as Globalive Capital, the investment fund of Wind's founder, Anthony Lacavera.
Lawrence Guffey, who is an adviser to Blackstone Group and a director on the T-Mobile US, Inc. board, was also part of that deal, as were Canadian investors Serruya Private Equity and Novus Wireless Communications.
Wind's shareholders have approved the sale and said in a separate release Wednesday that they are pleased with the transaction.
Mr. Shaw said several factors since Wind's 2014 sale justified the significantly higher valuation.
"First, I think the competitive landscape has evolved significantly. Wind is the sole remaining wireless new entrant in Ontario, Alberta and B.C., which I think has resulted in significant rationalized competitive behaviour," he said.
"The Wind business right now is materially stronger than it was a year ago," he added, noting it has significantly more spectrum holdings after acquiring airwaves from the Rogers/Mobilicity transaction, as well as at a discounted rate during a public auction earlier this year.
Buying Wind also gives Shaw a ready-made wireless business, Mr. Shaw said. "We're immediately in the space, we're immediately able to deliver new things to our customers."
The Shaw transaction will see the Calgary company acquire 100 per cent of the shares of Wind's parent company, Mid-Bowline Group Corp. (an anagram of the letters in Wind Mobile) under a plan of arrangement, which will require court approval.
The enterprise value of the deal is about $1.6-billion, based on quarterly financial statements as of Sept. 30, Shaw said.
Shaw said it will finance the deal with a view to maintaining its "investment-grade status" using a flexible approach that could include "potential debt issuance, asset sales, the issuance of preferred or common equity or any combination thereof."