After spinning it off in a frothy 2021 IPO market, Telus (T) is looking to re-absorb Telus International (TIXT) for a skinny 15% premium - in a $550M deal that looks accretive on an EBITDA basis.

The deal isn’t all that surprising, given Telus already owns nearly 60% of TIXT and accounts for a quarter of its revenue.

The offer values the IT business at just over $1B - not much higher than the ~$900M paid to it annually from Telus and small enough to not impact the leverage profile.

With TIXT shares closing above the offer, the market expects a competing bid or a sweetener - but if Telus can get this over the line it’s a near-term win. The long-term implications are muddier, as investors are unlikely to forget the 90% drawdown that preceded this transaction…

… which could impact the price tag on future spin offs, Telus Health in particular.

About Bullpen: Bullpen Finance Inc. publishes content on Canadian markets and provides paid research coverage of select Canadian issuers. Bullpen is paid in cash by covered issuers, does not accept stock or options, does not hold positions in covered securities, and does not conduct investment banking business. Bullpen and LodeRock Advisors Inc. are affiliated; LodeRock provides investor relations services to issuers, some of whom are covered by Bullpen Research. When a post discusses a covered issuer, a specific disclosure appears at the top of the post. This post is published for general information purposes. It is not personalized investment advice and is not tailored to any individual reader’s circumstances. Bullpen is not a registered investment adviser or dealer. For full disclosures, including analyst certification, jurisdictional statements, and conflict of interest policies, please see our Legal & Disclosures section on our website.

You might be interested in…