BCE To Gain Full Control Of Q9 Networks, Boost Cloud Suite

Leading Canadian telephone operator BCE Inc.’s (TO:BCE) subsidiary, Bell Canada, has decided to acquire the remaining assets of Q9 Networks Inc., a Toronto-based provider of outsourced hosting and data solutions to Canadian business and government customers from its partner investors. The deal is expected to help BCE gain an edge in the increasingly competitive market of hosting and cloud services.

The Latest Deal

BCE had taken over 35.4% of Q9 Networks in Oct 2012 wherein a group of investors – Ontario Teachers' Pension Plan, Providence Equity Partners, Madison Dearborn Partners and Montreal-based parent of Bell Canada, CTV television – bought the data centre operator for $1.1 billion, including assumed debt. BCE shelled out $180 million while the other three investors contributed $420 million for the initial stake buyout.

The latest transaction, valued at approximately $675 million including Q9 Networks’net debt but excluding Bell's existing ownership interest, is slated to close by the end of 2016.

Growth Prospects

The transaction will drive BCE’s investments in the data centre and cloud services industry . The acquisition is also expected to help Bell Canada compete with domestic and international providers in the emerging outsourced data services sector. Bell Canada’s Business Markets and Q9 Networks’ managed data solutions and interconnected broadband fibre connectivity services are offered via a network of secure, high-capacity data centres. The deal should follow-up the ongoing existing co-operation between BCE and Q9 since their 2012 acquisitions and integrated operations in 27 centres.

Several analysts also believe that the deal will boost BCE’s wireline organic revenues in 2017, considering the total size of $4.5 billion of BCE’s business market revenue.

The Bottom Line

The company did not disclose the amount it paid to its partners for the remaining stake of Q9 Networks, stating that the deal only includes Q9 Networks’ net debt. Analysts estimate the amount at $175–$190 million for the outstanding equity based on Q9’s net debt of $500 million since its 2012 sale. Moreover, the company’s Q9 Networks buyout is exposed to certain risks such as closing conditions, termination rights and uncertainties including limitation and regulatory approval.

Zacks Rank and Stocks to Consider

BCE currently has a Zacks Rank #4 (Sell). Investors interested in the telecommunication sector may consider better-ranked stocks such as NTT DOCOMO, Inc. (NYSE:DCM) and Nippon Telegraph and Telephone Corporation (NYSE:NTT) , both of which carry a Zacks Rank #1 (Strong Buy) and Intel Corporation (NASDAQ:INTC) with a Zacks Rank #2 (Buy).

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