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Note 3 Business acquisitions and dispositions

Note 3 Business acquisitions and dispositions

2016

Acquisition of Q9 Networks Inc. (Q9)

On October 3, 2016, BCE acquired the remaining 64.6% of the issued and outstanding shares of Q9 that it did not already own for a total cash consideration of approximately $170 million.

Q9 is a Toronto-based data centre operator providing outsourced hosting and other data solutions to Canadian business and government customers. The acquisition supports BCE’s ability to compete against domestic and international providers in the growing outsourced data services sector. Q9 is included in our Bell Wireline segment in our financial statements.

The purchase price allocation includes certain provisional estimates, in particular for property, plant and equipment and finite-life intangible assets. The following table summarizes the fair value of the consideration paid and the fair value assigned to each major class of assets and liabilities.

 

TOTAL  

Cash consideration

170  

Fair value of previously held interest in Q9 and favourable purchase option

131  

Note receivable from Q9

517  

Total cost to be allocated

818  

Trade and other receivables

19  

Other non-cash working capital

(39 )

Property, plant and equipment

311  

Finite-life intangible assets

267  

Long-term debt

(7 )

Deferred tax liabilities

(69 )

Other non-current liabilities

(16 )

 

466  

Cash and cash equivalents

12  

Fair value of net assets acquired

478  

Goodwill(1)

340  

 

In 2016, prior to the acquisition of Q9, BCE provided a loan of $517 million to Q9 mainly for the repayment of certain of its debt.

A gain on investment of $12 million was recognized in Other income (expense) in the income statements from remeasuring BCE’s previously held equity interest in Q9 to its fair value.

Revenues of $29 million and net earnings of $2 million are included in the income statements from the date of acquisition.

BCE’s consolidated operating revenues and net earnings for the year ended December 31, 2016 would have been $21,801 million and $3,038 million, respectively, had the Q9 acquisition occurred on January 1, 2016. These proforma amounts reflect the elimination of intercompany transactions and earnings related to our previously held interest, the amortization of certain elements of the purchase price allocation and related tax adjustments.

 

National expansion of HBO and The Movie Network (TMN)

In Q1 2016, BCE completed a transaction with Corus Entertainment Inc. (Corus) under which Corus waived its HBO content rights in Canada and ceased operations of its Movie Central and Encore Avenue pay TV services in Western and Northern Canada, thereby allowing Bell Media to become the sole operator of HBO Canada nationally across all platforms and to expand TMN into a national pay TV service. TMN was successfully launched nationally on March 1, 2016. BCE paid to Corus a total cash consideration of $218 million, of which $21 million was paid in 2015.

The following table summarizes the fair value of the consideration paid and the fair value assigned to each major class of assets and liabilities.

 

TOTAL  

Cash consideration

218  

Finite-life intangible assets

8  

Non-current assets

1  

Current liabilities

(3 )

Non-current liabilities

(8 )

Fair value of net assets acquired

(2 )

Goodwill(1)

220  

 

The transaction is part of our strategy to create, negotiate and deliver premium TV programming to Canadian consumers across more platforms on a national basis. 

This transaction did not have a significant impact on our consolidated operating revenues and net earnings for the year ended December 31, 2016.

 

Acquisition of Cieslok Media Ltd. (Cieslok Media)

Subsequent to year end, on January 3, 2017, BCE acquired all of the issued and outstanding common shares of Cieslok Media for a total cash consideration of $161 million.

Cieslok Media specializes in large-format outdoor advertising in key urban areas across Canada. This acquisition will contribute to growing and strengthening our digital presence in OOH advertising.

Cieslok Media will be included in our Bell Media segment in our financial statements.

The fair values of Cieslok Media’s assets and liabilities have not yet been determined.

 

Proposed acquisition of Manitoba Telecom Services Inc. (MTS)

On May 2, 2016, BCE announced that it intends to acquire all of the issued and outstanding common shares of MTS for a total consideration of $3.1 billion, of which 45% will be paid in cash and the remaining 55% through the issuance of approximately 28 million BCE common shares. The transaction is valued at approximately $3.9 billion, including net debt of approximately $0.8 billion. BCE will fund the cash component of the transaction through debt financing. MTS shareholder approval was obtained at a special meeting of shareholders held on June 23, 2016, and final court approval was obtained on June 29, 2016. On December 20, 2016, the CRTC approved under the Broadcasting Act the transfer of the broadcasting distribution undertaking licence held by MTS to BCE. On February 15, 2017, Innovation, Science and Economic Development Canada (ISED) and the Competition Bureau approved the proposed acquisition of MTS with the result that BCE has now obtained all necessary regulatory approvals to complete the transaction. Subject to certain closing conditions and termination rights, the transaction is expected to close on March 17, 2017. If the transaction does not close under certain circumstances, BCE may be liable to pay a break fee of $200 million to MTS.

MTS is an information and communications technology provider offering wireless, Internet, TV, phone services, security systems and information solutions including unified cloud and managed services to residential and business customers in Manitoba.

The acquisition of MTS will allow us to reach more Canadians through the expansion of our wireless and wireline broadband network while supporting our goal of being recognized by customers as Canada’s leading communications company.

BCE has agreed to divest approximately one-quarter of MTS’ post-paid subscribers and 13 retail locations to TELUS Corporation through one or more of its subsidiaries (TELUS) following the completion of the acquisition of MTS for total proceeds of approximately $300 million, subject to final adjustments. Subject to certain closing conditions and termination rights, this transaction is expected to close on April 1, 2017. The $75 million break fee that was payable by BCE to TELUS if the transaction with TELUS did not close under certain circumstances is no longer applicable given the receipt of all regulatory approvals.

BCE has also agreed to transfer to Xplornet Communications Inc. (Xplornet) a total of 40 Megahertz (MHz) of 700 MHz, advanced wireless services-1 and 2500 MHz wireless spectrum currently held by MTS, which has also been approved by ISED, 24,700 wireless customers once Xplornet launches its mobile wireless service, and 6 retail outlets. Xplornet will receive transitional remedy network access from BCE and MTS in urban areas of Manitoba for three years and other operational benefits as Xplornet builds out its own network in Manitoba. Subject to certain closing conditions and termination rights, this transaction is expected to close on March 17, 2017.

2015

 

Glentel

On May 20, 2015, BCE completed the acquisition of all of Glentel Inc.’s (Glentel) issued and outstanding common shares for a total consideration of $592 million, of which $296 million ($284 million, net of cash on hand) was paid in cash and the balance through the issuance of 5,548,908 BCE common shares. Immediately following the closing of the acquisition, BCE repaid Glentel’s outstanding debt in the amount of approximately $112 million and contributed $53 million in exchange for additional Glentel common shares.

Subsequently, also on May 20, 2015 and further to an agreement dated December 24, 2014, BCE divested 50% of its ownership interest in Glentel to Rogers Communications Inc. for a total cash consideration of approximately $473 million ($407 million, net of divested cash and transaction costs). The resulting gain of $94 million was recorded in Other income (expense) in 2015, at which time our remaining investment in Glentel was $379 million and was recorded in Investments in associates and joint ventures.

Glentel is a Canadian-based dual-carrier, multi-brand mobile products distributor. The transaction is part of our strategy to accelerate wireless and improve customer service. BCE accounts for its investment in Glentel as a joint venture using the equity method.

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