Telus Gives Up on Mobilicity Deal - Analyst Blog

Canadian telecom major Telus Corp. TU has abandoned its latest effort to acquire struggling rival Mobilicity, owing to regulatory hurdles.

Notably, this was the third time that Telus had bid for the smaller domestic wireless carrier, following back-to-back government opposition related to the transfer of Mobilicity's spectrum license. Spectrum is the main thing left in Mobilicity as the carrier has been bleeding with subscriber churn and is already under bankruptcy protection.

In May 2013, Telus had made an agreement to acquire Mobilicity for C$320.0 million ($315 million), when the latter was going through a tough time financially. Telus thereafter made a second bid of C$350.0 million (C$ 345.0 million) for Mobilicity in Apr 2014, only to be rejected by the federal government on both the occasions. The federal government argued that the proposed transaction would give away the wireless spectrum to an incumbent carrier.

Telus' latest decision to withdraw itself from the deal could also be based on the fact that the government has threatened to impose conditions which could impact Telus' participation in future spectrum auctions.

Mobilicity was one of the new entrants in the Canadian wireless space that lowered wireless tariffs but failed to grab significant market share. The operator's subscriber base reduced to 165,000 from 250,000 during May 2013.

A deal with Telus could have saved Mobilicity from bankruptcy protection while also permitting a non-disruptive service.  However, the small carrier now faces the danger of closure of business thus reducing competition within the Canadian wireless market.

Meanwhile, Telus and its wireless peers will now try to vie for a part of Mobilicity's subscriber base, which Telus could have otherwise enjoyed alone along with a stronger spectrum portfolio, had the deal duly materialized.

Telus currently carries a Zacks Rank #3 (Hold). Other stocks worth considering within this sector are Level 3 Communications Inc. LVLT, Kyocera Corp. KYO and KT Corp. KT. Level 3 currently sports a Zacks Rank #1 (Strong Buy), while KYO and KT Corp. carry a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
KT CORP KT: Free Stock Analysis Report
 
KYOCERA CP ADR KYO: Free Stock Analysis Report
 
LEVEL 3 COMM LVLT: Free Stock Analysis Report
 
TELUS CORP TU: Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research