Mobilicity has gained the approval of an Ontario court to proceed with a restructuring deal that will see the company broker a “recapitalization plan” with its creditors, while simultaneously pushing towards a sale of the company.
In a press release issued this morning, the privately-held company acknowledged it has “obtained two orders of the Ontario Superior Court of Justice authorizing Mobilicity to, among other things, call and hold meetings at which two arrangements will be voted on by debt holders pursuant to the Canada Business Corporations Act.”
Mobilicity’s demise could be seen as inevitabile and the company struggles to deal with a limited supply of credit. Catalyst, a company famous for buying into cash-strapped enterprises, controls a quarter of Mobilicity through credit lending. They’ve sued the carrier to prevent $75 million in further funding from being issued, claiming it has not yet been paid back for the initial loan.
According to the carrier, the two arrangements will be “mutually exclusive,” and will be pursued simultaneously to avoid a protracted restructuring process. The preferred endgame is the first, wherein the company’s shares, assets and debt will be acquired. TELUS is seen as the primary candidate for such a deal, after a document leaked earlier this month showing Canada’s third-largest carrier had been in talks with Mobilicity since February, with an acquisition price of between $350 and $400 million.
The second plan, called a “recapitalization” process, would happen if the company cannot be sold, and would see a realignment of the company’s finances — likely a sale of some of its private shares — to help pay back loans and free up some cash.
While it seems likely that the sale to TELUS will proceed, it’s likely to be met by scepticism from the Canadian public and distress by the CRTC, who wants to ensure a healthy competitive telecom environment in Canada. WIND Mobile is also believed to be on the sale block, and Catalyst owner Newton Glassman is seen to be pushing for a merger between the two new entrants.
Mobilicity customers don’t have to worry about changes to its network — at least for now — but it’s likely that a year from now, one or both of the UMTS-based new entrants may not exist, at least not in their current forms.