In Canada, after hours it was announced that Shaw will purchase Wind Mobile for $1.6 Billion. I was driving home at that time and my jaw dropped as I thought how the telecom landscape in Canada will change. Well, that and the fact that I intended to add to my BCE position and that day wrote two February Puts @ 54. Fun times.
http://newsroom.shaw.ca/corporate/newsroom/news/2015-12-16-Shaw-Communications-Inc-to-Acquire-WIND-Mobile-Corp/
http://business.financialpost.com/fp-tech-desk/shaw-communications-inc-to-acquire-wind-mobile-corp-in-1-6-billion-deal
| Date | Symbol | Type | Expiry | Strike | Quantity | Price | Gross | Commission | Net Price | Net Amount | Exposure | Status | Type |
| 2015-12-16 | BCE | Put | 02/19/16 | 54 | 2 | $1.0100 | $202.0000 | $12.45 | $0.9478 | $189.55 | $10,800.00 | Open | Uncovered |
Shaw operates primarily in the West Coast and had originally sought to develop its own teleco division. Wind Mobile being a smaller and developing new entrant didn't have the scale to compete with incumbents Bell, Rogers, and Telus.
Mostly as expected today Thursday December 17, the major telecos took a hit on the anticipated changes to the competitive landscape in Canada. In particular, Telus bore the brunt of the news as they will get heavier competition in its home area of the Canadian West Coast. This was evident from the share price declines and intra day they were down even more.
Closing Prices:
Rogers Communications RCI.B $47.45 -$2.81 -5.59%
BCE Inc. BCE $53.52 -$1.34 -2.44%
Shaw Communications Inc SJR.B $24.90 -$2.07 -7.68%
TELUS Corporation T $37.92 -$2.70 -6.65%
However, of interest was Manitoba Telecom (MBT $29.65 +$0.62 +2.14%). I've been looking to get back into this one since they completed their AllStream sale, which was said to be holding back other companies from taking out MBT. I likely will not pick up some shares, just because as you will see below am now potentially fully invested in telecoms.
Regardless, I believe Shaw needs Wind as a source of revenue and will benefit from this acquisition as it gets integrated into the company. I wrote three January Puts @ 25:
| Date | Symbol | Type | Expiry | Strike | Quantity | Price | Gross | Commission | Net Price | Net Amount | Exposure | Status | Type |
| 2015-12-17 | SJR.B | Put | 01/15/16 | 25 | 3 | $0.8500 | $255.0000 | $13.70 | $0.8043 | $241.30 | $7,500.00 | Open | Uncovered |
Then I decided the price was right to add a bit more Telus so I wrote one May Put @ 38:
| Date | Symbol | Type | Expiry | Strike | Quantity | Price | Gross | Commission | Net Price | Net Amount | Exposure | Status | Type |
| 2015-12-17 | T | Put | 05/20/16 | 38 | 1 | $2.0000 | $200.0000 | $11.20 | $1.8880 | $188.80 | $3,800.00 | Open | Uncovered |
Whooopss... I totally messed up the Telus Put. Bid/Ask Spread was pretty wide. Bid: $1.80, Ask $2.63. Yea, I wrote for $2.00 and it hit when the stock dipped to the mid-$37s. Totally not cool considering:
a) Stock was around $37 and strike at $38, means at least $1 of the premium is justified.
b) 5 months of time value would have been worth more than the second $1 of premium.
Hence, kicking myself a bit.
As Bell went down, I want to average up the Premium to give more flexibility to pare down later if necessary/possible. Added 1 more Put @ $1.80. Average Premium is now $1.2733
| Date | Symbol | Type | Expiry | Strike | Quantity | Price | Gross | Commission | Net Price | Net Amount | Exposure | Status | Type |
| 2015-12-16 | BCE | Put | 02/19/16 | 54 | 2 | $1.0100 | $202.0000 | $12.45 | $0.9478 | $189.55 | $10,800.00 | Open | Uncovered |
| 2015-12-17 | BCE | Put | 02/19/16 | 54 | 1 | $1.8000 | $180.0000 | $11.20 | $1.6880 | $168.80 | $5,400.00 | Open | Uncovered |
| Total | BCE | Put | 02/19/16 | 54 | 3 | $1.2733 | $382.0000 | $23.65 | $1.1945 | $358.35 | $16,200.00 | Open | Uncovered |
Having Shaw's clout will allow Wind to grow over the longer term. However, I think there is some opportunity from the dislocation caused by Shaw's move into the Telecom market. Today's price drop is likely an overreaction as:
1) Wind has existed for some time and its impact on the telecom market is already present.
2) Shaw will take some time to digest Wind and the actual deal isn't expected to close until mid-2016.
3) It will cost Shaw a lot of time, money, and focus/attention to build up/upgrade Wind assets. Although they kept the Wind team in place, attention will still be costly if they want to keep reins on them and oversee developments.
4) Shaw will need to finance this move (TD+CIBC).
- http://newsroom.shaw.ca/corporate/newsroom/news/2015-12-16-Shaw-Communications-Inc-to-Acquire-WIND-Mobile-Corp/Transaction Terms & Financing
Under the terms of the Transaction, Shaw will acquire 100% of the shares of WIND‟s parent company, Mid-Bowline Group Corp., by plan of arrangement, for an enterprise value of approximately $1.6 billion based on quarterly financial statements as of September 30, 2015. Shaw has executed a fully-committed bridge financing facility with the Toronto Dominion Bank and the Canadian Imperial Bank of Commerce. Shaw is committed to a financing plan that maintains its investment grade status and accordingly will optimize the significant flexibility available to it, including potential debt issuance, asset sales, the issuance of preferred or common equity or any combination thereof. Additional details regarding the longer term financing of the Transaction will be provided prior to close.
5) Shaw will likely end up raising pricing to the same level as incumbents in order to cover costs of above points (am I being pessimistic?).
In any case, I've effectively added a not insignificant $27,500 exposure to the Canadian telecom space and will need to be cautious. Fortunately, it appears the decline in prices is starting to be cleared out as the day's close the declines were reduced somewhat. There appear to be more macro risks at play though in the general markets, which could take the teleco's down alongside.
