Prestige Telecom Inc.
TSX VENTURE : PR

Prestige Telecom Inc.

June 12, 2008 17:51 ET

Prestige Becomes North American Outsource Partner of Choice in Telecommunications Infrastructure Industry With Proposed Acquisitions of WesTower, LLC and Radian Communication Services

- Combined value of transactions is approximately $100 million in a combination of cash, common shares and promissory notes of Prestige, not including assumed liabilities - Completion of the transactions positions Prestige as an outsourcing partner to both the wireless and wireline industries, with expertise to design, build and maintain network infrastructure - Prestige becomes the largest independent player in Canada with a significant platform in the United States for growth - Substantial increase in financial and operational size and scope - Well-timed strategic combination to capitalize on expected surge in wireless network infrastructure activity following Canadian federal wireless spectrum auction and rollout of 3G, 4G and WiMAX technologies in the United States to create nationwide wireless broadband networks

MONTREAL, QUEBEC--(Marketwire - June 12, 2008) -

NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA

Prestige Telecom Inc. ("Prestige" or the "Company") (TSX VENTURE:PR) of Montreal, Quebec, Canada announced today that it has entered into definitive purchase agreements dated June 11, 2008 with the members of WesTower, LLC ("WesTower") and the shareholders of Radian Communication Services (Canada) Limited ("Radian"), pursuant to which Prestige has agreed to acquire all of the outstanding membership interests of WesTower and all of the outstanding shares of Radian, as well as certain United States assets of Radian. The total purchase price for these transactions (collectively, the "Transaction") is approximately $100 million, not including assumed liabilities. The Transaction is expected to close in early July 2008 (the "Closing Date"), subject to receipt of required regulatory and other approvals; the entering into of non-competition agreements with certain of the WesTower and Radian vendors; the entering into of a qualification rights agreement among Prestige, the WesTower vendors, Onex Corporation and other parties; implementation of a $55.4 million credit facility, and the successful completion of a public offering of common shares of Prestige (the "Prestige Shares") for gross proceeds of approximately $30 million. All amounts used herein are in Canadian dollars, unless otherwise noted.

"This Transaction is transformational for Prestige as it will dramatically enhance the Company's operational, financial and geographic scale," said Mr. Pierre Yves Methot, Chairman & Chief Executive Officer of Prestige. "We have a solid history of acquisition and integration. By bringing together the complementary strengths and capabilities of the three companies, we are now in a position to take advantage of the growing trend to increased outsourcing of telecommunications infrastructure services in Canada and the United States."

The primary business of WesTower and Radian is the construction and maintenance of wireless towers and the augmentation of existing wireless sites by overlaying new third generation ("3G") and fourth generation ("4G") technologies. Prestige will be in a position to support incumbent and new entrant wireless providers in connection with the additional network build-outs in the coming years following the acquisition of new spectrum and wireless licenses in Canada. In the United States, Prestige will be similarly positioned to capitalize on the strong wireless infrastructure services growth which is being driven by the introduction of an array of next-generation wireless technologies that are being used to create new nationwide wireless broadband networks.

Mr. Methot added, "We are very pleased at the confidence expressed by the owners of these two companies who will be taking equity stakes in Prestige and we warmly welcome the management and employees of WesTower and Radian to the Prestige Telecom family."

After completion of the Transaction, based on the pro forma financial statements prepared in connection with the Transaction, Prestige will have combined revenue(1), on a pro-forma basis for the period ended December 31, 2007, of $250.6 million, making Prestige the largest independent Canadian telecommunications infrastructure services company, with significant assets and resources in the United States. The normalized EBITDA(2) of Prestige for the period ended December 31, 2007, on a pro forma basis after completion of the Transaction, is $17.3 million.

Commenting on the Transaction, Calvin Payne, CEO of WesTower, who will become Vice-Chairman of Prestige, said, "We are at a juncture when communications industry players are increasingly choosing to work with outsource service partners in order to focus on their core competencies of driving customer growth through development of new and innovative customer service offerings. The Prestige, WesTower and Radian combination makes a great deal of sense because of the complementarities of technical talent, management strengths, infrastructure service offerings and customers."

Onex Corporation, majority owner of Radian, will become Prestige's single largest shareholder with an estimated 13% equity interest (basic). "This Transaction is consistent with our approach to value creation," said Andrew Sheiner, Managing Director at Onex Corporation. "We believe that the combination of these businesses will generate substantial operational and financial synergies, thereby allowing Prestige to become more cost effective and a more valued partner to its telecommunications clients."

Transaction Structure and Financing

Under the terms of the Radian purchase agreement, Prestige will pay approximately $20 million plus assumed debt of approximately $0.6 million, subject to adjustments, at closing to purchase all the issued and outstanding common shares and class A preferred shares of Radian, which will be payable as to $7.5 million in cash and approximately $12.5 million in Prestige Shares. Under the terms of the WesTower purchase agreement, Prestige will pay approximately $80 million, subject to adjustments, at closing to purchase all the membership interests in WesTower, which will be payable as to $55 million in cash, $20.0 million in Prestige Shares and $5.0 million in promissory notes of Prestige.

The consideration paid to the owners of WesTower and Radian for the Transaction will consist of:

- $62.5 million in cash;

- $32.5 million in Prestige Shares valued at $0.60 per share resulting in the issuance of 54,223,333 Prestige Shares, all to be subject to an escrow agreement providing for releases of one third after six months, one third after 12 months and one third after 18 months from the Closing Date; and

- $5.0 million in promissory notes with a term of two years, bearing interest of 8% per annum payable semi-annually.

The cash portion of the Transaction will be funded with a combination of debt and equity:

- It is anticipated that a bank credit facility (the "Credit Facility") in the authorized amount of $55.4 million will be arranged by a major Canadian financial institution, subject to satisfaction of all outstanding conditions precedent and satisfactory completion of any outstanding due diligence, comprising $50 million as a two-year revolving line of credit and $5.4 million as a two-year term loan.

- Prestige intends to raise approximately $30 million through a public offering of Prestige Shares with the pricing of the Prestige Shares to be determined in context of the market (the "Equity Financing"). Prestige intends to use the gross proceeds of the Equity Financing to fund part of the cash portion of the purchase price for the Transactions, to pay the costs of the Transaction (which are estimated at $4.9 million, including agent's commission and expenses of the Equity Financing) and to retire approximately $4.7 million of existing Prestige debt.

Prestige has engaged a syndicate of agents co-led by Blackmont Capital Inc. and Dundee Securities Corporation and including GMP Securities Ltd. and Versant Partners Inc. (collectively, the "Agents"), to act as agents of Prestige on a commercially reasonable efforts basis for the Equity Financing. In connection therewith, the Agents will be paid a 6% cash commission, will be reimbursed for their expenses, and will be issued agent's compensation options to purchase up to 6% of the Prestige Shares issued under the Equity Financing. The Agents will also be granted an over allotment option to increase the size of the Equity Financing by 15% for a period of 30 days after the Closing Date.

On a pro-forma basis, after giving effect to the proposed $30 million Equity Financing, the Credit Facility, the completion of the Transaction, and the private placement of units and special warrants of Prestige completed in March 2008, the Company expects to have total assets in excess of $170 million, total debt of approximately $55 million, book value of shareholders' equity of approximately $70 million, and approximately 186 million shares outstanding on a fully-diluted basis.

Business Rationale, Synergies and Management Team

Prestige will combine its wireline installation and engineering skills with WesTower's full wireless deployment services including designing, manufacturing, erecting and maintaining network towers and Radian's aerial and technical services expertise, which will create a company with the critical mass and skills to become a more valued strategic partner to its North American telecommunications customers.

The United States assets of WesTower and Radian create a scalable platform for growth in the United States wireless infrastructure market. The component of pro forma revenue from the combined United States operations of WesTower, Radian and Prestige exceeds US$90 million. According to the Telecommunications Industry Association, 2008 Telecommunications Market Review and Forecast (the "TIA"), demand for wireless Internet access and other data services is forecast to grow at over 30% per year for the next three to five years driven by new applications, including video games, mobile healthcare, mobile TV, GPS, digital wallet and social networking. Wireless carriers will need to focus on network performance and quality as a competitive necessity which will drive further increases in cell density of existing networks as well as the deployment of new technology and equipment. To meet this demand, according to the TIA, infrastructure spending is forecast to grow at close to double digit rates, and wireless carriers are expected to continue to outsource their communications site infrastructure needs as a means of accelerating their network deployments. Management of Prestige is of the opinion the United States telecommunications infrastructure services industry is far more fragmented than Canada; and therefore the United States market represents a significant opportunity for organic growth and industry consolidation.

Management of Prestige has identified cost-saving opportunities resulting from the acquisitions that will reduce operating costs through streamlining of duplicative functions, facilities consolidation, and systems-related savings. An integration plan and team will be put in place with the objective to achieve at least $2 million of cost synergies within a period of 6 to 12 months following the closing date of the Transaction. Operating synergies will include facilities integration, improved asset utilization, streamlined procurement practices, and reduction of overhead. Brian McFadden, the current President and COO of Prestige, will assume the additional role of Chief Integration Officer, supported by Douglas Breitenbach, the former head of purchasing at Bell Canada, in a new role as Chief Procurement Officer. A further potential synergy is the ability of Prestige to utilize the approximately $30.1 million and US$12.4 million in tax-loss carry forwards of Radian and WesTower.

Prestige also announces changes to its executive management team and its board of directors to be effective upon completion of the Transaction, as follows:

Calvin Payne, the CEO of WesTower, will join the Board of Prestige and will be appointed Vice-Chairman.

Michael Jarvis, the President of United States Operations of WesTower, will become the President of United States Operations of Prestige and will join the Board of Prestige.

Brian McFadden will continue as the President and Chief Operating Officer of Prestige, resigns from the Board of Prestige.

Peter Jeffrey, the President of Canadian Operations of WesTower will become the President of Canadian Wireless Operations of Prestige.

Mark Goldman will become the President of Canadian Wireline Operations of Prestige.

Mike Hale, the current Vice-President, Operations of Radian, will become the President, Wireless Technical Services of Prestige.

Mike Carr, the Chief Financial Officer of WesTower, will become the Chief Financial Officer of Prestige.

"These synergies and opportunities underscore the advantages from combining these three companies to build a stronger and more strategic business than any of us could have achieved independently," concluded Mr. Methot. "Our new management team combines the talent from all three companies, who bring both entrepreneurial and large company track records to execute our vision and strategy, and all of whom will have personally meaningful equity stakes in Prestige. We look forward to reporting on our progress of building value for all our stakeholders."

Prestige is reserving a price of $0.60 per share for the up to 54,223,333 Prestige Shares to be issued pursuant to the Transaction.

Financial and Legal Advisors

Blackmont Capital Inc. is acting as financial advisor, and Fasken Martineau DuMoulin LLP, Pillsbury Winthrop LLP and Burstall Winger LLP are acting as legal advisors to Prestige with respect to the Transaction, the Equity Financing and the Credit Facility. Solaris Capital Advisors Inc. is acting as financial advisor and Goodmans LLP is acting as legal advisor to Onex with respect to the Transaction. Heenan Blaikie LLP and Greenberg Traurig LLP are acting as legal advisors to WesTower with respect to the Transaction.

About WesTower

WesTower, LLC (www.westower.com) designs, manufactures, erects and maintains wireless communications transmitting and receiving facilities for wireless communications carriers and independent tower operators located in the United States and Canada. WesTower's principal operations include infrastructure equipment construction and installation, radio transmission base station modification, fabrication, architectural and engineering design and project management. WesTower operates out of 28 regional offices in the United States and Canada and has approximately 725 full-time equivalent employees, as of May 31, 2008. Customers of WesTower include the major wireless carriers, equipment vendors and tower owner/operators. For the year ended December 31, 2007, WesTower had revenue of CDN$164.1 million, adjusted EBITDA(2) of CDN$12.2 million, total assets of $76.9 million and total liabilities of $40.4 million and incurred a net loss of ($1.8 million) (all amounts converted to Canadian dollars).

About Radian

Radian (www.radiancorp.com), 89%-owned by Onex Corporation, provides technical and aerial services to the Canadian communications and broadcast industries. Radian has over 310 full-time-equivalent employees operating from eight branch and service offices across Canada and the U.S. Radian's services include network design, equipment installation, tower engineering, site construction, and infrastructure and equipment maintenance. Radian's deployment expertise ranges from stand-alone projects such as a broadcast tower installation, to large multi-site network deployments on a national basis for wireless communications. Given the significant reorganization of the balance sheet of Radian as part of the Transaction, management of Prestige is of the view the only relevant financial information of Radian for the year ended December 31, 2007, is that Radian had revenue of $57.7 million and adjusted EBITDA(2) of $3.3 million.

About Prestige Telecom Inc.

Prestige Telecom is a leading provider of network engineering, materials furnishing, installation and support services (commonly referred to as EF&I services) required to construct, operate and maintain wireline, wireless and cable television networks. Prestige assists telecommunications original equipment manufacturers and service providers to engineer, install and upgrade their infrastructures to support enhanced voice, high speed data and video services.

In Canada, Prestige operates from three full service locations based in Montreal, Quebec; Toronto, Ontario and Edmonton, Alberta and has 350 professional and technical personnel. Prestige operates in the United States market through a mutual subcontractor agreement with Comforce Telecom Inc. under the trade name Prestige Comforce Professional Services ("PCPS"). PCPS is based in Plano, Texas and provides services to customers throughout the United States.

(1) Prestige pro forma revenue for the period ended December 31, 2007 represents the audited revenue for WesTower and Radian for the 12 months ended December 31, 2007, plus the unaudited revenue for Prestige for the nine months ended December 31, 2007.

(2) Earnings before interest, taxes, depreciation, amortization, stock-based compensation, foreign exchange and integration costs. Normalized EBITDA for WesTower and Radian represents the EBITDA for these two companies, adjusted for the assets being sold and non-recurring expenses. Prestige pro-forma normalized EBITDA for the 12 months ended December 31, 2007 represents the unaudited EBITDA of Prestige for the nine months ended December 31, 2007, plus the normalized EBITDA for WesTower and Radian for the twelve months ended December 31, 2007.

As indicated above, completion of the Transaction is subject to a number of conditions, including but not limited to, TSX Venture Exchange Inc. approval. The Transaction cannot close until the required approval are obtained. There can be no assurance that the Transaction will be completed as proposed or at all.

Investors are cautioned that any information released or received with respect to the Transaction may not be accurate or complete and should not be relied upon. Trading in the securities of Prestige should be considered highly speculative.

Except for historical information contained herein, this news release contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially. Neither Prestige, WesTower nor Radian will update these forward-looking statements to reflect events or circumstances after the date hereof. More detailed information about potential factors that could affect financial results is included in the documents filed from time to time with the Canadian securities regulatory authorities by Prestige.

The TSX Venture Exchange Inc. has in no way passed upon the merits of the Transaction and has neither approved nor disapproved the contents of this press release.

Contact Information

  • Prestige Telecom Inc.
    Pierre Yves Methot
    Chairman and Chief Executive Officer
    (514) 457-4488, Ext. 277