Canada’s largest telecom carrier BCE Inc.’s (BCE) pending acquisition of CTV Network received approval from Canadian Radio-television and Telecommunications Commission (“CRTC”). BCE Inc. is a 100% subsidiary of Bell Canada.
With approvals form the Competition Bureau in January and CRTC, Bell Canada is on track to complete the proposed acquisition early in the second quarter of 2011. Previously, the company was expecting a mid-2011 completion.
Demand for video is growing rapidly among Canadians who are switching to mobile, online and digital TV platforms for content. Bell offers Canada’s leading High Definition TV, online services and the most advanced mobile TV products.
Bell Canada currently owns a 15% equity stake in Canada’s largest private television broadcaster, CTV Network, and is eyeing the remaining 85% stake for C$1.3 billion (US$1.25 billion) as announced in September 2010. We believe the transaction with CTV Network will accelerate the company’s growth prospects in video.
Upon completion of the proposed transaction, Bell Canada will start operating a new business unit “Bell Media.” All CTV television assets (network and specialty cable channels such as TSN, Discovery, MTV, MuchMusic and Bravo) as well as Bell’s popular Sympatico Web portal will fall under the umbrella of Bell Media.
The CRTC approval carries a major condition that Bell Canada has to invest C$245 million in broadcasting over seven years. CRTC also mentioned in the approval that BCE will not be allowed to offer exclusive content from CTV on Bell’s mobile or online services until the regulator completes an industry review later in the year.
We believe that acquiring the full stake in CTV will accelerate Bell’s video growth for mobile, online services and satellite TV system at a competitive cost structure. The transaction will reduce content costs for BCE‘s mobile services and satellite TV system as well as enhance the fiber-to-the-home (FTTH) network deployment in major urban areas. CTV enjoys leadership in specialty television, digital media, and conventional TV and radio broadcasting.
BCE Inc. operates in an environment crowded with new wireless carriers. Bell Canada competes against two other national carriers Telus Corporation (TU) and Rogers Communications inc. (RCI). The CTV transaction should provide Bell Canada a competitive advantage in gaining market share.
We are currently maintaining our long-term Neutral recommendation, supported by the Zacks #3 Rank (Hold).
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