Big Canadian telecom companies talk deal

Canada's two largest telecommunications companies, BCE Inc. and Telus Corp., are discussing the possibility of combining their businesses as Canadian pension funds and foreign investors bid for BCE.

BCE Inc. disclosed the talks with its Western Canadian-based rival in a news release late Wednesday.

BCE, the parent of Bell Canada, is Canada's largest telecom company while Telus is No. 2.

Telus said Thursday the combination would be an all-Canadian solution as foreign investors circle its rival.

Montreal-based BCE has three other potential bidders that are vying to take it private in what would be the biggest corporate takeover in Canadian history.

Analysts say it could sell for 32 billion Canadian dollars ($30 billion).

BCE has a market capitalization of about $29.45 billion, while Telus has a market cap of about $20.31 billion.

Telus had annual revenue of 8.8 billion Canadian dollars ($8.2 billion) last year and 10.8 million customer connections including 5.1 million wireless subscribers, 4.5 million wireline network access lines and 1.1 million Internet subscribers.

BCE's services include local, long distance and wireless phone services, high-speed and wireless Internet access and satellite television services. Other BCE holdings include interest in CTVglobemedia, one of the Canada's biggest media companies.

Telus joins a growing list of companies eyeing BCE, which confirmed earlier this year it was reviewing options to increase shareholder value.

BCE has asked has all suitors to submit their offers by July 1.

Those suitors include buyout groups led by the Canada Pension Plan Investment Board, Ontario Teachers Pension Plan Board, and U.S. private equity firm Cerberus Capital Management LP.

BCE said it and Telus have entered into a mutual nondisclosure and standstill agreement on a non-exclusive basis while their talks proceed.

A proposed combination of Vancouver-based Telus and BCE would likely raise antitrust concerns that the combined companies would face scant competition from a small number of rivals.

Federal Industry Minister Maxime Bernier acknowledged last week the government is aware of the debate over whether Canada's mobile market lacks competition. Critics say the country's main mobile companies _ BCE, Telus and Rogers Communications Inc. _ have already become too dominant.

While private-equity bids for BCE have dominated takeover speculation so far, BCE CEO Michael Sabia said at the company's recent annual meeting that a private equity takeover is not the only option available to the company.

That has led to speculation on other possibilities such as a massive share buyback or a combination with Telus.

A union of BCE and Telus would likely require the new entity to divest some of its wireline assets where they overlap, UBS Securities analyst Jeffrey Fan wrote in a note to clients.

Synergies in wireline communications of a combined company would likely come in around 700 million Canadian dollars ($653 million), Fan noted.

Sabia has resisted suggestions of a takeover in the past, saying his reshaping of BCE, including an end to its conglomerate structure and a planned return to the Bell Canada name, would end a long period of flat stock-market performance.

Telus shares were down 18 Canadian cents to 65.58 Canadian dollars while BCE climbed 1.13 Canadian dollars to 40.30 Canadian dollars on the Toronto stock exchange.