BCE, Telus shares rise on merger speculation

Simon Avery,  Globe and Mail Update

Shares of Telus Corp. and BCE Inc. and rose Wednesday after an analyst published a report speculating that the two biggest telecom players in Canada would merge within two years.

“Faced with cyclical and secular pressures on the top-line, we believe that a BCE-Telus merger is increasingly likely in the coming year or two as both companies look to cut costs and sustain margins,” Jonathan Allen, of RBC Dominion Securities Inc., wrote in a research report.

The arrival of greater competition in the wireless sector through the launch of three to five new firms in the next year should help remove regulatory hurdles for a deal, he said.

Telus considered making a premium bid for its larger rival two years ago, when BCE put itself in play. BCE's efforts at privatization eventually failed.

Mr. Allen says that the next time the two companies sit down together they should consider a merger of equals, that would see Telus shareholders receiving one-third of the new entity and BCE shareholders getting two-thirds. This structure would avoid adding debt, he said.

Both BCE and Telus are seeing their growth squeezed in response to new competition and changing consumer habits. The new environment is forcing them to find new ways to cut costs.

“There is only so much cost cutting that can be achieved individually. The scale benefits from a merger of Bell and Telus are substantial,” Mr. Allen wrote.

A combined company would produce savings of $1.2-billion annually, he estimated.

Officials from Bell and Telus declined to comment on what they said was rumour and speculation.

In afternoon trading on the Toronto Stock Exchange, shares of BCE rose 43 cents to $25.51 and Telus shares climbed 57 cents $33.76.