Telus Corp. continued down the acquisition trail Friday, announcing it has signed a letter of intent to purchase the Canadian operations and facilities of PSINet.
It was Telus’s
second acquisition announcement in less than 24 hours. On Thursday afternoon, Burnaby, B.C.-based Telus said it had signed an agreement to acquire Arqana Technologies, an IT infrastructure solutions provider based in Mississauga, Ont.
The Telus-PSINet announcement was made concurrently with PSINet Inc. filing for bankruptcy protection in Canada and the United States, making the company’s Canadian division an especially attractive buy for Telus.
“”I think you can call it a buyer’s market if you have cash,”” said Jim Peters, Telus’s executive vice-president of corporate development. “”But we’re pretty selective in terms of the assets we go after. When we buy a company, we go after the people and the customer base.””
In acquiring PSINet’s Canadian arm, Telus would gain employees, customers and infrastructure across Canada. Though both parties signed the letter of intent, the acquisition is still subject to regulatory approval and approval under bankruptcy proceedings. The final word on these matters is expected before August.
Though financial details of the proposed acquisition were not released, Peters said the price is less than US$100 million, though significantly higher than the $21 million Arqana deal.
PSINet , which offers Web hosting, Internet access, and security and e-commerce applications, currently has approximately 275 employees and 8,600 corporate accounts in Canada. It also has 50 points of presence in Canada and serves most Canadian major markets, including Vancouver, Edmonton, Calgary, Ottawa, Montreal and Toronto, where PSINet also houses an Internet data centre.
“”If you look at the PSI Net deal, there’s a lot of infrastructure they get as well,”” said Mark Quigley, associate director of research for The Yankee Group Canada. “”And (PSINet) is going through bankruptcy, so Telus is getting it for a song”” compared to the height of its valuation.
Quigley also said the acquisition would work to strengthen Telus’s presence in Central and Eastern Canada, particularly in Toronto and Montreal. PSINet has a co-location hosting facility in Montreal , which will allow Telus to make further inroads into the city after acquiring QuebecTel Group Inc. in June 2000.
“”This quickly gives them presence in the city, pops them right downtown,”” Quigley said.
Peters said acquiring companies in Quebec is a key component of Telus’s national strategy.
“”Language alone was a huge factor,”” Peters said. “”Bilingual Calgarians are quiet scarce. It’s (important to) have a French speaking workforce. They know the people. They know what the customer wants.””
Over the last nine months, Telus has done much to transform itself from a Western Canadian telecom into a true national carrier.
The big move came in August 2000, when Telus announced its intention to acquire wireless outfit Clearnet Communications Inc. (the deal was finally completed in early 2001). More recently, Telus announced it was acquiring Williams Communications Canada Inc. in March 2001 (the deal closed Thursday), and Toronto e-solutions integrator Daedalian. Part of the funding for the buys is coming from the $4.5 billion in new senior unsecured credit facilities Telus received from the Toronto Dominion Bank in March.
Analysts have said the Daedalian and Williams purchases were at least as much about penetrating the eastern half of Canada as the companies themselves. Peters didn’t deny that geography was a major factor in the acquisitions.
“”We have a number of strategic imperatives, and one of them is building national capabilities,”” he said. “”We’re incredibly strong in B.C. and Alberta and we’re trying to be strong in Eastern Canada. We’re going to be strong in Eastern Canada.””
The acquisition of Arqana, subject to regulatory approval but expected to close next month, will give Telus even more ground in Ontario and a client base that includes Hydro One, Bank of Montreal, Bank of Nova Scotia and Manulife Financial. Looking towards the future, Quigley said Telus could be positioning itself to become the sole provider of services for the banks.
“”When banks do business, they tend to look for companies that provide a national solution,”” Quigley said.
Quigley added that it was no coincidence the Arqana and PSINet announcements came within 24 hours of each other.
“”These kinds of acquisitions tend to go hand-in-hand,”” he said. “”Being able to provide the infrastructure side as well as the services side is important.””
Peters said the transactions were complementary pieces of a national puzzle Telus is aiming to fill.
But is Telus overextending itself with its run of its acquisitions? Quigley said no, though he suggested integrating the businesses will require some effort.
“”They’ve made a number of acquisitions in a short period of time and they’re going to be looking at consolidating them. That provides a lot of challenges,”” he said.