Justin Tang/The Canadian Press
Telus Inc. T-T has signed a definitive agreement to take back control of its affiliate, Telus Digital TIXT-T, which has seen its share price plummet since it went public, locking in major losses as the company considers future spin-out plans.
The Vancouver-based telecom will acquire all outstanding multiple and subordinate shares of Telus Digital, which offers technology outsourcing, for US$539-million or US$4.50 a share, the company said in a release Tuesday morning.
This is about a third higher than the US$3.40 the company initially proposed in its June indication of interest, meaning Telus will pay about US$140-million more than first planned for the takeover.
Telus Digital’s share price made its debut at US$25 after its initial public offering in 2021, but has since declined by close to 90 per cent in the wake of industry-wide pressures on customer-service businesses.
The offer represents a 16-per-cent premium on Telus Digital stock, which closed at US$3.88 on the New York Stock Exchange on Friday.
Shares of Telus stood at $22.55 on the Toronto Stock Exchange at market close on Tuesday, down 0.4 per cent.
In a statement, Josh Blair, co-chair of the Telus Digital special committee established to consider the proposal and alternatives, recognized the higher share-price offer, saying the committee and its legal advisers had determined it was in the best interests of Telus Digital and fair to its minority shareholders.
“We believe the transaction provides more immediate and greater value to minority shareholders on a risk-adjusted basis than is expected to be realizable by Telus Digital as a stand-alone entity in the foreseeable future,” he said.
Telus said it will use “existing liquidity sources on-hand” to support the transaction. Yet, the proposed acquisition represents a new cost for Telus, as it aims to pay down its nearly $27-billion in long-term debt and looks to capitalize on its other business lines.
When it first proposed the deal, Telus said that reacquiring its former spin-out would allow it to accelerate its artificial-intelligence and software capabilities across its business lines.
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RBC Dominion Securities Inc. analyst Drew McReynolds said in a note to investors Tuesday morning that the proposed acquisition is “consistent with Telus management’s public commentary over the past 18 months around the importance of Telus Digital to the digital transformation” of the company.
Despite the higher total price than initially proposed, Mr. McReynolds said he still expects the company to meet its previously announced leverage plans for the year, “driven by non-core asset sales, asset crystallizations and what is now a gradually improving telecom operating environment.”
The public listing of Telus Digital was celebrated as the first step in chief executive officer Darren Entwistle’s ambitions to spin off two other business lines, Telus Health and Telus Agriculture & Consumer Goods.
Telus Digital shareholders can elect to receive cash or Telus shares.
The deal is dependent on receiving the approval of at least two-thirds of Telus Digital shareholders of record as of Sept. 12 through a vote at a meeting on Oct. 27, as well as court regulatory approvals. This includes Telus itself, which holds approximately 87 per cent of the outstanding voting power of the Telus Digital shares.