By Euan Rocha and Alastair Sharp
TORONTO (Reuters) - Canada's largest telecom company, BCE Inc, said on Wednesday it will pay C$3.95 billion ($3.68 billion) to take regional telecom Bell Aliant BA.TO private, buying the 56 percent stake it does not already own to cut expenses and bolster its offerings in Atlantic Canada.
Toronto-based BCE said the deal will result in C$100 million in annual cost savings, partly due to the elimination of duplicate public company costs.
"Privatizing Bell Aliant within BCE supports our dividend growth model and capital investment strategies," Siim Vanaselja, BCE's chief financial officer, said in a statement, adding that BCE will also maintain its investment-grade credit ratings following the expected close of the deal in late November.
BCE, which already controls about 44 percent of Bell Aliant, said the deal values the remainder at C$31 a share, a premium of 10 percent to the stock's close on Tuesday.
Shareholders of Bell Aliant, which also offers services in rural Ontario and Quebec, can elect to receive either C$31 in cash, or 0.6371 of one BCE share, or C$7.75 in cash and 0.4778 of one BCE share for every share they own, the companies said in a joint statement.
Shares in BCE were up 0.8 percent at C$49.39 at midmorning on Wednesday on the Toronto Stock Exchange, while Bell Aliant shares jumped more than 10 percent to sit just above BCE's offer price at C$31.17.
BCE competes with Rogers Communications Inc RCIb.TO and Quebecor Inc QBRb.TO in Eastern Canada for phone, Internet and TV customers, while sharing a national wireless network with Western Canada-focused Telus Corp T.TO.
The company, which operates under the Bell name, will fund the deal with available cash, and it will issue about 61 million shares to fund the equity portion. It said cash will cover a quarter of the purchase, and stock the rest.
The board of Bell Aliant has unanimously advised investors to back the deal on the recommendation of its financial advisers, Scotia Capital and Barclays Capital Canada.
The takeover will need approval from Canada's Competition Bureau, but it will not need approvals from regulators such as the Canadian Radio-Television and Telecommunications Commission and Industry Canada as there is no change in control of Bell Aliant, and no transfers of wireless spectrum licenses, the companies said.
"The consideration appears to be fairly valued given the way shares are trading in the telecom space and we see few issues with regulatory approvals related to the completion of the transaction," said Desjardins Capital analyst Maher Yaghi in a note to clients.
BCE said it plans to invest C$2.1 billion across Atlantic Canada over the next five years to enable the continued rollout of broadband wireline and wireless for consumers and business users.
It said the next phase of the buildout of its 4G LTE network, which offers high-speed wireless services, will be in Atlantic Canada, with more than 100 small towns and rural locations across the region benefiting from enhanced mobile service by the end of 2015.
BCE said the deal will also enhance Bell Aliant's ability to develop its broadband Internet and TV services in the Atlantic region, as well as strengthen next-generation business services such as data hosting and cloud computing.
(Additional reporting by Ashutosh Pandey in Bangalore; Editing by Savio D'Souza; and Peter Galloway)