Telus Corp. raised $1.3-billion in a bought deal announced Wednesday evening, in a move to bring down its debt level following two large transactions and to bolster its balance sheet ahead of the build-out of its fifth-generation wireless network.
The Vancouver-based telecom company spent big in the back half of 2019, acquiring home-security company ADT Security Services Canada Inc. for approximately $700-million, and German call-centre operator Competence Call Center for about $1.3-billion.
Both deals involved significant leverage, and in December, debt-rating agency Standard & Poor’s lowered its outlook for Telus to “negative,” suggesting the company could face a downgrade owing to an increased debt-to-equity ratio.
Telus said proceeds from the financing would be used for “the reduction of indebtedness” and for capital expenditures.
The bought deal, priced at $52 a share, was handled by a syndicate of 13 underwriters, including Canada’s six large banks. RBC Dominion Securities and TD Securities led the deal, taking 20 per cent each. The underwriting fee was 3.75 per cent.
Telus’s stock price dropped 3.18 per cent on Thursday. Early in the day, it looked as though the deal could fail after Telus’s stock dropped below the $52 deal price – a sign that the underwriters might have to reprice the deal to offload shares. However, by the end of day, Telus’s share price was $52.01.
Telus is anticipating significant expenditure on fifth-generation (5G) wireless infrastructure in the coming years. More immediately, the federal government is expected to auction off additional access to 3.5 GHz wireless spectrum, which is used by 5G technology, sometime later this year.
“Lowering the debt load also gives Telus some flexibility for transactions in the near-medium term, which we believe could include tuck-in acquisitions for Telus International on its path to an IPO,” Canaccord Genuity Corp. analyst Aravinda Galappatthige wrote in a note on Thursday.
The equity raise also marks a shift in Telus’ strategy, Mr. Galappatthige added. For a number of years, the company focused on share buybacks.
"With M&A activity in full swing … and the stock trending up supported largely by easing interest rates, Telus appears to have shifted toward an issuer of stock,” Mr. Galappatthige wrote.
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