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▇▇▇▇▇▇ WIRELESS COMMUNICATIONS INC.
DIRECTORS' CIRCULAR
RELATING TO THE OFFER DATED NOVEMBER 24, 2004 BY
▇▇▇▇▇▇ COMMUNICATIONS INC.
AND ITS WHOLLY-OWNED SUBSIDIARY RWCI ACQUISITION INC.
TO PURCHASE ALL OF THE OUTSTANDING CLASS B RESTRICTED VOTING SHARES OF
▇▇▇▇▇▇ WIRELESS COMMUNICATIONS INC.
NOT OWNED BY
▇▇▇▇▇▇ COMMUNICATIONS INC. AND ITS AFFILIATES
THE BOARD OF DIRECTORS OF THE CORPORATION HAS CONCLUDED THAT THE OFFER
IS FAIR AND REASONABLE TO SHAREHOLDERS AND IS RECOMMENDING THAT
SHAREHOLDERS TENDER THEIR RWCI RESTRICTED VOTING SHARES TO THE OFFER.
NOTICE TO UNITED STATES SHAREHOLDERS
The Offer is made for the securities of a Canadian issuer and while
the Offer is subject to Canadian disclosure requirements, shareholders
should be aware that these requirements are different from those of the
United States.
The enforcement by shareholders of civil liabilities under the
United States federal securities laws may be affected adversely by the
fact that ▇▇▇▇▇▇ Wireless Communications Inc. is located in Canada, and
by the fact that its officers and directors are residents of Canada.
November 24, 2004
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TABLE OF CONTENTS
PAGE
----
BACKGROUND TO THE OFFER..................................... 3
RECOMMENDATION OF THE BOARD OF DIRECTORS OF THE
CORPORATION............................................... 6
REASONS FOR RECOMMENDATION.................................. 6
SUMMARY OF VALUATION AND FAIRNESS OPINION................... 7
OWNERSHIP OF SECURITIES OF THE CORPORATION BY DIRECTORS AND
OFFICERS OF THE CORPORATION............................... 8
PRINCIPAL HOLDERS OF SECURITIES OF THE CORPORATION.......... 10
ACCEPTANCE OF THE OFFER BY DIRECTORS AND OFFICERS OF THE
CORPORATION............................................... 10
RECENT TRADING IN SHARES OF THE CORPORATION................. 11
ISSUANCES OF SHARES......................................... 12
OWNERSHIP OF SECURITIES OF OFFERORS......................... 13
RELATIONSHIPS BETWEEN OFFERORS AND DIRECTORS AND OFFICERS OF
THE CORPORATION........................................... 14
RELATIONSHIPS BETWEEN THE CORPORATION AND ITS DIRECTORS AND
OFFICERS.................................................. 14
INTEREST OF CERTAIN PERSONS IN MATERIAL CONTRACTS........... 14
MATERIAL CHANGES IN THE AFFAIRS OF THE CORPORATION.......... 15
RESPONSE OF THE CORPORATION................................. 15
OTHER INFORMATION........................................... 15
STATUTORY RIGHT OF ACTION FOR DAMAGES....................... 15
APPROVAL AND CERTIFICATE.................................... 16
CONSENT..................................................... 17
SCHEDULE "A" -- VALUATION AND FAIRNESS OPINION
2
▇▇▇▇▇▇ WIRELESS COMMUNICATIONS INC.
DIRECTORS' CIRCULAR
This directors' circular (the "Directors' Circular") is issued by the board
of directors (the "Board of Directors") of ▇▇▇▇▇▇ Wireless Communications Inc.
(the "Corporation" or "RWCI") in connection with the offer (the "Offer") made by
▇▇▇▇▇▇ Communications Inc. ("RCI") and its wholly-owned subsidiary RWCI
Acquisition Inc. ("RCI Subco", and together with RCI, the "Offerors") to
purchase all of the issued and outstanding Class B Restricted Voting Shares (the
"RWCI Restricted Voting Shares") of the Corporation not already owned by RCI and
its affiliates on the basis of 1.75 Class B Non-Voting Shares of RCI (the "RCI
Non-Voting Shares") for each RWCI Restricted Voting Share, upon the terms and
subject to the conditions set forth in the Offer and take-over bid circular of
the Offerors dated November 24, 2004 (collectively, the "Offer and Circular")
and mailed to shareholders with the Directors' Circular.
Except as otherwise expressly indicated in this Directors' Circular, all
amounts herein are expressed in Canadian dollars.
BACKGROUND TO THE OFFER
OVERVIEW
On September 13, 2004, RCI entered into an agreement with JVII General
Partnership, a partnership wholly-owned by AT&T Wireless Services, Inc. ("AT&T
Wireless"), to purchase its entire interest in the Corporation, representing
approximately 34.2% of the equity of the Corporation, for approximately Cdn.
$1,767 million or $36.37 per share. Subsequent to executing the agreement, the
Corporation and RCI began exploring various methods of transferring funds to RCI
in order to permit RCI to repay its $1,750 million bridge credit facility used
to fund the AT&T Wireless share purchase.
On September 27, 2004, at the request of RCI, the Board of Directors of the
Corporation established a committee of directors of the Corporation independent
of RCI to, among other matters, retain a financial adviser to prepare a formal
valuation of the RWCI Restricted Voting Shares in accordance with Ontario
Securities Commission Rule 61-501 ("Rule 61-501"), Policy Q-27 of the Quebec
Autorite des marches financiers ("Policy Q-27") and the Minority Shareholder
Protection Agreement (the "Shareholder Protection Agreement") dated August 7,
1991 between RCI and the Corporation, in connection with a possible substantial
issuer bid that could be used as a mechanism to transfer funds to RCI. Any such
issuer bid would have been made to all shareholders of the Corporation. No terms
of the issuer bid (including price or the number of securities to be bid for)
were ever established. The Corporation was of the view that until it knew the
likely range of fair market values for the RWCI Restricted Voting Shares
pursuant to a formal valuation, it could not assess or come to a view whether it
would be prepared to initiate a substantial issuer bid.
On October 13, 2004, RWCI Acquisition Inc., a wholly-owned subsidiary of
RCI, completed the purchase of all of the shares of the Corporation owned by
AT&T Wireless through JVII General Partnership.
The Independent Committee was established by the Corporation and is
composed of ▇▇▇▇▇ ▇. ▇▇▇▇▇ (as Chairman), ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇▇, the three RWCI directors elected solely by the shareholders of the
Corporation other than RCI and its affiliates ("Minority Shareholders"), all of
whom are independent of RCI, its associates and affiliates, and of management of
the Corporation. The Independent Committee retained ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ as its legal
adviser and BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ Inc. ("BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇") as its financial
advisor. BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ was asked by the Independent Committee to prepare a
formal valuation of the RWCI Restricted Voting Shares on the assumption that
RWCI would possibly make a substantial issuer bid on terms that were not
specified. BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ began preparation of a formal valuation of the RWCI
Restricted Voting Shares on that basis under the supervision of the Independent
Committee. On November 9, 2004, the Independent Committee advised RCI that BMO
▇▇▇▇▇▇▇ ▇▇▇▇▇' preliminary "en bloc" valuation range for the RWCI Restricted
Voting Shares was $46.00 to $54.00 per share.
On November 9, 2004, upon receipt of the preliminary valuation range,
management of RCI concluded that, rather than a substantial issuer bid, it could
recommend an insider bid by RCI as a first step to potentially taking the
Corporation private. On November 10, 2004, RCI requested that the Independent
Committee supervise the completion of the valuation, review the terms of the
Offer in order to conclude whether the Offer would be fair from a financial
point of view to Minority Shareholders and make a recommendation to the RWCI
Board whether the Board should
3
recommend that Minority Shareholders accept the Offer. On November 11, 2004, the
board of directors of RCI met and approved in principle the making of the Offer.
Also on that date, the Corporation and BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ amended the BMO ▇▇▇▇▇▇▇
▇▇▇▇▇ engagement letter to reflect that the Offer would be made by RCI using RCI
Non-Voting Shares as consideration and to request that BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇
determine whether it could give an opinion that the Offer consideration is fair,
from a financial point of view, to the Minority Shareholders.
MANDATE
The Independent Committee's original mandate was to:
(a) retain independent legal counsel to advise the Independent Committee;
(b) retain a financial advisor independent of RCI its associates and
affiliates and management of the Corporation to prepare a formal
valuation, in accordance with the Shareholder Protection Agreement,
Rule 61-501 and Policy Q-27, of the Corporation's Class B Restricted
Voting Shares and to supervise the preparation of that valuation;
(c) carry out any negotiations that may be necessary between the
Corporation and RCI in connection with a substantial issuer bid;
(d) if requested, report to the Board of Directors of the Corporation as
to the desirability or fairness of a substantial issuer bid to
shareholders and whether the Board of Directors of the Corporation
should make any recommendation to shareholders in connection with
such a bid; and
(e) to take such other actions as the Independent Committee should
consider necessary or desirable in order to carry out its mandate.
On November 10, 2004, RCI requested that the Independent Committee (which
request was subsequently ratified by the Board of Directors of the Corporation):
(a) confirm with BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ that the formal valuation being
prepared by it was relevant to an insider bid by RCI and not just a
substantial issuer bid by the Corporation;
(b) request that any necessary valuation work be completed by BMO ▇▇▇▇▇▇▇
▇▇▇▇▇ with respect to the RCI Non-Voting Shares being offered as
consideration under the Offer, in part because the Shareholder
Protection Agreement requires a formal valuation of that
consideration;
(c) request that BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ do the necessary valuation work in
order to determine whether it would be able to deliver an opinion
with respect to the Offer consideration that it was fair from a
financial point of view to Minority Shareholders; and
(d) confirm whether BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ would be able to render an opinion
that no formal valuation of the RCI Non-Voting Shares would be
necessary under Rule 61-501 and Policy Q-27.
DELIBERATIONS AND RECOMMENDATION OF THE INDEPENDENT COMMITTEE
Between October 7, 2004 and November 22, 2004 the Independent Committee met
formally nine times.
At the initial meeting on October 7, 2004, in addition to having a general
discussion regarding its mandate, the Independent Committee confirmed the
engagement of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ as its legal counsel and interviewed two investment
banks as candidates to act as its financial advisor.
On October 12, 2004, the Independent Committee confirmed that it was
satisfied that BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇, based on representations made by BMO ▇▇▇▇▇▇▇
▇▇▇▇▇, was independent and qualified for the purposes of Rule 61-501, Policy
Q-27 and the Shareholder Protection Agreement and resolved to engage BMO ▇▇▇▇▇▇▇
▇▇▇▇▇ as the Committee's financial advisor, subject to negotiating an
appropriate fee arrangement. Once an appropriate fee arrangement was agreed
upon, the Independent Committee engaged BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ pursuant to an
engagement letter dated as of October 19, 2004 (the "Engagement Letter") to
provide financial advice to the Independent Committee in relation to a possible
substantial issuer bid to be made by RWCI, to prepare a formal valuation of the
RWCI Restricted Voting Shares in accordance with Rule 61-501, Policy Q-27 and
the Shareholder Protection Agreement and, if requested, to provide a fairness
opinion regarding the fairness of the consideration under the substantial issuer
bid, from a financial point of view, to the holders of RWCI Restricted Voting
Shares other than RCI.
4
At a meeting held on October 25, 2004, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ presented to the
Independent Committee an interim status report on the progress of their
valuation work, including the results of discussions with RWCI management.
At a meeting held on November 1, 2004, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ provided the
Independent Committee with a further update on the status of their valuation
work. The Independent Committee was also advised that BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ had
completed a series of meetings with RWCI management and had received access to
all required information. BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ outlined the various valuation
methodologies that it intended to apply and discussed the scope of its review to
date.
On November 9, 2004, the Independent Committee confirmed, following
discussions with BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇, that the appropriate valuation approach for
purposes of a substantial issuer bid was the fair market value or "en bloc"
approach without minority discount, as is required by Rule 61-501 and Policy
Q-27. At this meeting, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ updated the Independent Committee on
discussions that it had held with RWCI management, and reviewed in detail its
preliminary valuation. BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ indicated that, subject to completion
of due diligence, its preliminary "en bloc" valuation range for a RWCI
Restricted Voting Share was $46.00 to $54.00 per share. As part of its
presentation to the Independent Committee, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ provided details
regarding the application of each valuation methodology used in connection with
the valuation, including key assumptions and limitations. Following the meeting,
the Chairman of the Independent Committee communicated this preliminary "en
bloc" valuation range to management of RCI. Subsequently, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇
confirmed that the same "en bloc" valuation approach would be applicable to
determining the fair market value of the RWCI Restricted Voting Shares in
connection with the Offer.
On November 10, 2004, the Independent Committee was advised that RCI was
considering making the Offer and was requested to take the steps referred to
above under "Mandate". At a meeting of the Independent Committee on November 11,
2004:
(a) BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ tabled a written copy of its valuation
presentation;
(b) the remaining due diligence and valuation work were discussed,
including BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇' approach to a valuation of the RCI
Non-Voting shares proposed to be offered as consideration under the
Offer; and
(c) a letter amending the Engagement Letter to reflect the Offer was
executed.
On November 12, 2004, the Independent Committee met with ▇▇▇▇ ▇▇▇▇▇▇▇▇,
Chief Financial Officer of the Corporation, to reconfirm the management
forecasts relied on by BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ for its valuation work. At a board
meeting held later that day, the Independent Committee advised the Board of
Directors that it was comfortable with management's forecasts and the Board of
Directors formally ratified its instructions to the Independent Committee to
continue its work and to review the Offer.
On November 18, 2004, the Independent Committee met with BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇
at which time BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ reviewed the consideration under the Offer,
confirmed the preliminary valuation range of the RWCI Restricted Voting Shares,
and provided preliminary confirmation that the proposed share exchange ratio was
fair from a financial point of view, all subject to completion of due diligence.
On November 22, 2004, having completed its updating diligence and internal
review and approval processes, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ met with the Independent
Committee and reconfirmed, and delivered its final valuation report setting
forth, its formal valuation range of $46.00 to $54.00 per share for the RWCI
Restricted Voting Shares (the "Valuation") and opined that the consideration
offered under the Offer is fair, from a financial point of view, to the Minority
Shareholders (the "Fairness Opinion").
In considering whether the Offer is in the best interests of Minority
Shareholders, the Independent Committee considered relevant factors including
the following:
(a) the Valuation and Fairness Opinion;
(b) the fact that the consideration under the Offer had a value
(determined based on average closing prices for the RWCI Restricted
Voting Shares and the RCI Non-Voting Shares for the five day period
ending November 10, 2004, the last trading day before RCI publicly
announced its intention to make the Offer) slightly above the
mid-point of the BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ valuation range for the RWCI
Restricted Voting Shares;
(c) the liquidity of the market for the RWCI Restricted Voting Shares and
the relatively greater liquidity of the RCI Non-Voting Shares;
5
(d) the opportunity for Minority Shareholders to continue to participate
in the wireless business of the Corporation through receiving shares
of RCI, a public company with a more diverse asset base and
significantly larger capital base than the Corporation;
(e) the fact that RCI controls the Corporation, with the result that
there is no prospect of an offer for the RWCI Restricted Voting
Shares from a third party;
(f) based on the average closing price on the TSX for the RWCI Restricted
Voting Shares for the five day period ending November 10, 2004, the
Offer represents a premium of 14.1%, 19.0% and 28.2% to the weighted
average closing prices of the RWCI Restricted Voting Shares for the
20, 40 and 100 trading day periods ending on that date, and a 38%
premium to the price paid to AT&T Wireless Services, Inc. (through
JVII general partnership) for its shares of RWCI;
(g) the consideration under the Offer can be received on a tax deferred
"rollover" basis for Canadian federal income tax purposes by certain
eligible shareholders who elect such basis by making the required
designation in the Letter of Acceptance and Transmittal accompanying
the Offer;
(h) the simplified corporate structure that will result if RWCI is taken
private will enhance the common branding and product bundling
initiatives in the Rogers group of companies;
(i) the recent $2,800 million high yield debt offering by ▇▇▇▇▇▇ Wireless
Inc. and the additional leverage to which the Corporation will be
exposed; and
(j) the expected distribution of $1,750 million from ▇▇▇▇▇▇ Wireless Inc.
as a return of capital to the Corporation (following the closing of
the $2,800 million high yield debt offering) and the Corporation's
review of the various methods of transferring such distribution to
its Shareholders so that RCI will have adequate funds to repay its
$1,750 million bridge facility incurred in connection with RCI's
acquisition of RWCI Restricted Voting Shares from AT&T Wireless.
In reaching its determination, the Independent Committee also considered
and evaluated, among other things: (a) information concerning the business,
operations, property, assets, financial condition, operating results and
prospects of the Corporation and RCI; (b) current industry, economic and market
conditions and trends and its informed expectations as to the prospects for the
wireless voice communications industry; and (c) historical market prices and
trading information with respect to the RWCI Restricted Voting Shares and the
RCI Non-Voting Shares.
At the November 22, 2004 meeting, after considering all of these factors,
the Independent Committee concluded that the price and terms of the Offer are
fair and reasonable to Minority Shareholders and resolved to recommend that the
Board of Directors recommend that Minority Shareholders accept the Offer.
Immediately thereafter, the Independent Committee reported its conclusions and
recommendation and presented the Valuation and Fairness Opinion to the Board of
Directors.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF THE CORPORATION
After due consideration of the report and recommendation of the Independent
Committee and the Valuation and Fairness Opinion, the Board of Directors has
determined that the Offer is fair and reasonable to Minority Shareholders and
resolved to recommend that the holders of RWCI Restricted Voting Shares tender
such shares to the Offer. The resolution to recommend acceptance of the Offer
was passed unanimously with all directors or officers of the Offerors or their
associates abstaining from voting.
REASONS FOR RECOMMENDATION
In reaching its decision to recommend acceptance of the Offer, the Board of
Directors considered a number of factors, including the following:
(a) the report of the Independent Committee which advised the Board of
Directors that the Independent Committee was of the opinion that the
Offer is fair and reasonable to Minority Shareholders and recommended
that the Board of Directors recommend that Minority Shareholders
accept the Offer;
(b) the Valuation and Fairness Opinion; and
(c) the factors considered by the Independent Committee as described
above.
6
The discussion of the information and factors considered by the Independent
Committee and the Board of Directors and described in this Directors' Circular
is not intended to be exhaustive but is believed to include all material factors
considered by the Independent Committee and the Board of Directors. In addition,
in reaching the determination to recommend acceptance of the Offer, the
Independent Committee and the Board of Directors did not assign any relative or
specific weights to the foregoing factors which were considered, and individual
directors may have given different weights to different factors.
SUMMARY OF VALUATION AND FAIRNESS OPINION
The following constitutes a summary only of the Valuation and Fairness
Opinion. The Valuation and the Fairness Opinion have been prepared and provided
solely for the use of the Independent Committee and the Board of Directors and
for inclusion in the Offer and Circular and this Directors' Circular, and may
not be used or relied upon by any other person without the express prior written
consent of BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇. BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ believes that its analyses must
be considered as a whole. Selecting portions of its analyses or the factors
considered by BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇, without considering all factors and analyses
together, could create a misleading view of the process underlying the Valuation
and the Fairness Opinion. The preparation of a valuation is a complex process
and is not necessarily susceptible to partial analysis or summary description.
Any attempt to do so could lead to undue emphasis on any particular factor or
analysis. The following summary is qualified in its entirety by the full text of
the Valuation and Fairness Opinion which is appended hereto as Schedule "A".
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ was retained by the Independent Committee to prepare and
deliver a formal valuation of the RWCI Restricted Voting Shares in accordance
with the requirements of Rule 61-501, Policy Q-27 (collectively, the "Rules"),
and the Shareholder Protection Agreement, to prepare a valuation of the RCI
Non-Voting Shares in accordance with the Shareholder Protection Agreement and to
provide its opinion as to the fairness, from a financial point of view, of the
consideration offered under the Offer to Minority Shareholders.
On November 9, 2004, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ delivered to the Independent
Committee a preliminary "en bloc" value range of $46.00 to $54.00 per share for
the RWCI Restricted Voting Shares. On November 22, 2004, having completed its
updating diligence and internal review and approval processes, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇
met with the Independent Committee and confirmed and delivered its final
Valuation and Fairness Opinion setting forth, its formal valuation range of
$46.00 to $54.00 per share for the RWCI Restricted Voting Shares and opined that
the consideration offered under the Offer is fair, from a financial point of
view, to the Minority Shareholders.
In the preparation of its formal valuation, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ performed due
diligence on the Corporation and RCI, conducted discussions with senior
financial management of the Corporation, and relied upon information and
forecasts supplied by the Corporation as well as publicly available financial
information, all as detailed in the Valuation.
The fair market value of the RWCI Restricted Voting Shares was analyzed on
a going concern basis, which included the acquisition of Microcell
Telecommunications, Inc., and on an "en bloc" basis in accordance with the
Rules.
For the purposes of determining the value of the RWCI Restricted Voting
Shares, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ relied on three methodologies:
- the discounted cash flow ("DCF") approach;
- the comparable trading approach; and
- the precedent transaction approach.
The following is a summary of the range of fair market values of the RWCI
Restricted Voting Shares resulting from the DCF approach, the comparable trading
approach, and the precedent transaction approach:
EQUITY VALUE PER
RWCI SHARE
----------------
LOW HIGH
------ ------
Discounted cash flow approach............................... $47.18 $56.46
Comparable trading approach (2005E & 2006E average)......... $41.63 $52.58
Precedent transaction approach.............................. $39.08 $48.90
7
In arriving at its opinion as to the fair market value of the RWCI
Restricted Voting Shares, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇, for the reasons set forth in the
Valuation and Fairness Opinion, attributed the greatest weight to the DCF
approach and the least weight to the precedent transaction approach. BMO ▇▇▇▇▇▇▇
▇▇▇▇▇ concluded that no material additional synergy value should be assigned to
the RWCI Restricted Voting Shares.
In considering the value of the RCI Non-Voting Shares being offered as
consideration under the Offer for the purposes of the Fairness Opinion and the
Valuation of the RCI Non-Voting Shares in accordance with the Shareholder
Protection Agreement, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ relied upon the market trading approach.
The market trading approach was deemed by BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ to be an appropriate
basis for valuing the consideration offered to Minority Shareholders under the
Offer after considering several factors, all as detailed in the Valuation. BMO
▇▇▇▇▇▇▇ ▇▇▇▇▇ considered the following range of recent trading levels for the
RCI Non-Voting Shares:
RCI NON-VOTING SHARES IMPLIED
TRADE WEIGHTED VALUE OF
PERIOD ENDING NOVEMBER 19, 2004 SHARE PRICE (1) CONSIDERATION (2)
------------------------------- --------------------- -----------------
1 Day................................................. $29.11 $50.94
10 Days............................................... $29.01 $50.76
20 Days............................................... $28.68 $50.19
30 Days............................................... $28.33 $49.58
---------------
(1) Highest price traded in last 10 trading days was $30.37.
(2) Based on 1.75 RCI Non-Voting Shares per RWCI Restricted Voting Share.
Based on its market trading analysis, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ determined a value
range for the RCI Non-Voting Shares of $28.00 to $30.00 per share.
Minority Shareholders accepting the Offer will receive 1.75 RCI Non-Voting
shares for each RWCI Restricted Voting Share, representing $49.00 to $52.50
based on the foregoing value range for the RCI Non-Voting Shares, which is
within the value range in the Valuation.
Based upon and subject to the matters described in the Fairness Opinion,
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ concluded that, as of November 22, 2004, the consideration
offered under the Offer is fair, from a financial point of view, to the Minority
Shareholders.
OWNERSHIP OF SECURITIES OF THE CORPORATION
BY DIRECTORS AND OFFICERS OF THE CORPORATION
The following table sets forth the names and positions of all the directors
and senior officers of the Corporation and the number, designation and
percentage of outstanding securities of the Corporation beneficially owned,
directly or indirectly, or over which control or direction is exercised by each
such director and senior officer of the Corporation and, to the knowledge of the
directors and senior officers of the Corporation, after reasonable enquiry, by
their respective associates:
NUMBER OF NUMBER OF RWCI
CLASS A MULTIPLE RESTRICTED VOTING
VOTING SHARES PERCENTAGE OF SHARES OWNED OR PERCENTAGE OF
OWNED OR OVER OUTSTANDING OVER WHICH OUTSTANDING
WHICH CONTROL CLASS A CONTROL OR RWCI
OR DIRECTION IS MULTIPLE DIRECTION IS RESTRICTED
NAME POSITION(S) HELD EXERCISED VOTING SHARES EXERCISED VOTING SHARES
---- ---------------- ---------------- ------------- ----------------- -------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇...... Executive Vice Nil Nil Nil Nil
President and Chief
Technology Officer
▇▇▇▇▇▇ ▇. ▇▇▇▇▇....... Executive Vice Nil Nil Nil Nil
President, Chief
Marketing Officer,
President, Wireless
Service
▇▇▇▇▇ Burgetz......... Senior Vice President Nil Nil 2,000 less than 1%
and Chief Information
Officer
8
NUMBER OF NUMBER OF RWCI
CLASS A MULTIPLE RESTRICTED VOTING
VOTING SHARES PERCENTAGE OF SHARES OWNED OR PERCENTAGE OF
OWNED OR OVER OUTSTANDING OVER WHICH OUTSTANDING
WHICH CONTROL CLASS A CONTROL OR RWCI
OR DIRECTION IS MULTIPLE DIRECTION IS RESTRICTED
NAME POSITION(S) HELD EXERCISED VOTING SHARES EXERCISED VOTING SHARES
---- ---------------- ---------------- ------------- ----------------- -------------
▇▇▇▇▇▇ ▇. Chesham..... President, Ontario Nil Nil Nil Nil
Region
M. ▇▇▇▇▇▇▇▇ ▇▇▇▇...... Vice President, Nil Nil Nil Nil
Treasurer
H. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
Q.C., ICD.D......... Director and Deputy Nil Nil 1,000 less than 1%
Chairman
▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇.......... Director and Honorary Nil Nil 2,000 less than 1%
Chairman
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
CA.................. Senior Vice President Nil Nil Nil Nil
and Chief Financial
Officer
▇▇▇ ▇. ▇▇▇▇▇▇......... Director Nil Nil Nil Nil
▇▇▇▇▇ ▇. ▇▇▇▇▇........ Director Nil Nil 5,000 less than 1%
▇▇▇▇ ▇. ▇▇▇▇, CA...... Vice President Nil Nil Nil Nil
▇▇▇▇▇▇ ▇. ▇▇▇▇........ Director Nil Nil 1,000 less than 1%
▇▇▇▇ ▇▇▇▇▇▇▇.......... President, Eastern Nil Nil Nil Nil
Region
▇▇▇▇▇▇ ▇. ▇▇▇▇........ President, Western Nil Nil Nil Nil
Region
▇▇▇▇▇ ▇. ▇▇▇▇▇........ Executive Vice Nil Nil Nil Nil
President Sales,
Service and
Distribution
▇▇▇▇▇ ▇▇▇▇▇▇▇......... Vice President, Human Nil Nil Nil Nil
Resources
▇▇▇▇▇ ▇. ▇▇▇▇▇▇....... Vice President, Nil Nil Nil Nil
General Counsel and
Secretary
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇..... Vice President and Nil Nil Nil Nil
Associate General
Counsel
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, CA.. Director and President Nil Nil Nil Nil
and Executive Officer
▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇▇......... Director Nil Nil 1,000 less than 1%
The ▇▇▇. ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, P.C.,
Q.C................. Director Nil Nil 2,000 less than 1%
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, O.C.
(1)................. Director and Chairman 62,820,371 100% 64,911,816 80.7%
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇..... Director Nil Nil 7,000 less than 1%
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇...... Director Nil Nil 1,000 less than 1%
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇.... Senior Vice-President, Nil Nil 455 less than 1%
Customer Process
Improvement
J. ▇▇▇▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇.......... Director Nil Nil 2,000 less than 1%
---------------
(1) Through RCI, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, O.C. owns or exercises control or direction
over 62,820,371 RWCI Class A Shares, representing 100% of the outstanding
RWCI Class A Shares, and 64,911,816 RWCI Restricted Voting Shares
representing 80.7% of the issued and outstanding RWCI Restricted Voting
Shares.
9
The following directors and officers of the Corporation hold options
pursuant to RWCI Stock Option Plans to purchase the shares indicated beside his
or her name:
UNEXERCISED OPTIONS TO PURCHASE
RWCI RESTRICTED VOTING SHARES
NAME (EXERCISABLE/UNEXERCISABLE)
---- -------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇............................................ 29,275/42,850
▇▇▇▇▇▇ ▇. ▇▇▇▇▇............................................. 5,700/44,100
▇▇▇▇▇ Burgetz............................................... 21,750/62,250
▇▇▇▇▇▇ ▇. Chesham........................................... 4,900/28,525
H. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Q.C., ICD.D............................ 18,200/4,200
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇........................................ 14,700/4,200
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, CA........................................ 4,925/38,100
▇▇▇▇▇ ▇. ▇▇▇▇▇.............................................. 11,200/4,200
▇▇▇▇▇▇ ▇. ▇▇▇▇.............................................. 15,000/4,200
▇▇▇▇ ▇▇▇▇▇▇▇................................................ 2,900/46,200
▇▇▇▇▇▇ ▇. ▇▇▇▇.............................................. 15,525/44,625
▇▇▇▇▇ ▇. ▇▇▇▇▇.............................................. 5,500/42,000
▇▇▇▇▇ ▇▇▇▇▇▇▇............................................... 5,200/17,225
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, CA........................................ 359,675/74,850
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇....................................... 18,200/4,200
The ▇▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, P.C., Q.C....................... 16,400/4,200
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇........................................... 16,400/1,200
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇.......................................... 13,300/50,500
J. ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇................................ 400/1,200
PRINCIPAL HOLDERS OF SECURITIES OF THE CORPORATION
To the knowledge of the directors and officers of the Corporation after
reasonable enquiry, the following table sets forth the persons and companies who
hold more than 10% of any class of equity securities of the Corporation and the
number, designation and percentage of outstanding securities of any class of
securities of the Corporation beneficially owned, directly or indirectly, or
over which control or direction is exercised by each such person or company. To
the knowledge of the directors and officers of the Corporation, after reasonable
enquiry, no person or company acting jointly or in concert with the Corporation
beneficially owns, directly or indirectly, or exercises control or direction
over any shares of RWCI.
NUMBER OF CLASS A PERCENTAGE OF NUMBER OF RWCI PERCENTAGE OF
MULTIPLE VOTING SHARES OUTSTANDING RESTRICTED VOTING OUTSTANDING
OWNED OR OVER WHICH CLASS A SHARES OWNED OR OVER RWCI
CONTROL OR DIRECTION IS MULTIPLE VOTING WHICH CONTROL OR RESTRICTED
NAME EXERCISED SHARES DIRECTION IS EXERCISED VOTING SHARES
---- ----------------------- --------------- ---------------------- -------------
▇▇▇▇▇▇ Communications Inc.
(1)........................ 62,820,371 100% 64,911,816 80.7%
---------------
(1) See table under "Ownership of Securities of the Corporation By Directors
and Officers of the Corporation" for share position of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
O.C.
ACCEPTANCE OF THE OFFER BY DIRECTORS AND OFFICERS OF THE CORPORATION
Each of the directors and senior officers of the Corporation has indicated
an intention to accept the Offer in respect of any RWCI Restricted Voting Shares
that are owned by such person or over which such person exercises control or
direction. The Corporation understands that RCI intends, subject to regulatory
approval, to offer holders of options to acquire RWCI Restricted Voting Shares
the opportunity to exchange them for options to acquire RCI Non-Voting Shares.
It is expected that holders of unexercisable options will exchange them for RCI
options.
10
RECENT TRADING IN SHARES OF THE CORPORATION
Except as set forth below, none of the Corporation or any of its directors
or senior officers or, to the knowledge of the directors and officers of the
Corporation, after reasonable enquiry, any associate of any director or officer
of the Corporation, or any person or company holding more than 10% of a class of
equity securities of the Corporation or any person or company acting jointly or
in concert with the Corporation, has traded in securities of the Corporation
during the six months preceding the date of the Directors' Circular.
NUMBER OF
SECURITIES
ACQUISITION (+)/ PRICE PER
NAME TRADE DATE TYPE OF SECURITY DISPOSITION (-) SHARE
---- ---------- ---------------- ---------------- ---------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇................. July 22, 2004 RWCI Restricted Voting* +7,500 $11.8200
July 22, 2004 RWCI Restricted Voting* +13,725 $16.4200
July 22, 2004 RWCI Restricted Voting* +6,500 $15.6100
July 22, 2004 RWCI Restricted Voting* +3,125 $28.7500
July 22, 2004 RWCI Restricted Voting -30,850 $38.2549
July 30, 2004 RWCI Restricted Voting* +6,200 $20.7400
July 30, 2004 RWCI Restricted Voting -6,200 $39.0000
August 3, 2004 RWCI Restricted Voting* +7,975 $20.7400
August 3, 2004 RWCI Restricted Voting -7,975 $39.2500
▇▇▇▇▇▇ ▇. ▇▇▇▇▇.................. June 10, 2004 RWCI Restricted Voting* +9,000 $16.8800
June 10, 2004 RWCI Restricted Voting -9,000 $35.0000
▇▇▇▇▇ Burgetz.................... July 22, 2004 RWCI Restricted Voting* +25,000 $18.1500
July 22, 2004 RWCI Restricted Voting -25,000 $38.2549
▇▇▇▇▇▇ ▇. Chesham................ August 4, 2004 RWCI Restricted Voting* +4,125 $16.8800
August 4, 2004 RWCI Restricted Voting -1,525 $39.7500
August 4, 2004 RWCI Restricted Voting -2,200 $39.7600
August 4, 2004 RWCI Restricted Voting -100 $39.7700
August 4, 2004 RWCI Restricted Voting -300 $39.7800
H. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Q.C.,
ICD.D.......................... June 17, 2004 RWCI Restricted Voting* +4,000 $32.7500
June 17, 2004 RWCI Restricted Voting -3,900 $35.0000
June 17, 2004 RWCI Restricted Voting -100 $35.0500
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, CA............. July 22, 2004 RWCI Restricted Voting* +7,775 $16.8800
July 22, 2004 RWCI Restricted Voting -7,775 $38.2500
▇▇▇▇▇▇ ▇. ▇▇▇▇................... June 22, 2004 RWCI Restricted Voting* +6,000 $32.7500
June 22, 2004 RWCI Restricted Voting -600 $35.5200
June 22, 2004 RWCI Restricted Voting -2,500 $35.4700
June 22, 2004 RWCI Restricted Voting -2,900 $35.3000
▇▇▇▇ ▇▇▇▇▇▇▇..................... May 25, 2004 RWCI Restricted Voting -200 $35.0000
June 30, 2004 RWCI Restricted Voting -500 $35.8500
▇▇▇▇▇ ▇. ▇▇▇▇▇................... June 24, 2004 RWCI Restricted Voting* +8,500 $16.8800
June 24, 2004 RWCI Restricted Voting -100 $35.6100
June 24, 2004 RWCI Restricted Voting -8,400 $35.6000
▇▇▇▇▇ ▇▇▇▇▇▇▇.................... June 30, 2004 RWCI Restricted Voting* +1,900 $16.8800
June 30, 2004 RWCI Restricted Voting -1,900 $35.8547
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, CA............. July 22, 2004 RWCI Restricted Voting* +15,275 $16.8800
July 22, 2004 RWCI Restricted Voting -15,275 $38.2549
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇............ June 24, 2004 RWCI Restricted Voting* +6,000 $32.7500
June 24, 2004 RWCI Restricted Voting -5,900 $35.6000
June 24, 2004 RWCI Restricted Voting -100 $35.6100
11
NUMBER OF
SECURITIES
ACQUISITION (+)/ PRICE PER
NAME TRADE DATE TYPE OF SECURITY DISPOSITION (-) SHARE
---- ---------- ---------------- ---------------- ---------
The ▇▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, P.C.,
Q.C............................ June 10, 2004 RWCI Restricted Voting* +1,800 $28.4100
June 10, 2004 RWCI Restricted Voting -1,800 $35.0000
June 18, 2004 RWCI Restricted Voting* +6,000 $32.7500
June 18, 2004 RWCI Restricted Voting -1,500 $34.9300
June 18, 2004 RWCI Restricted Voting -400 $34.9400
June 18, 2004 RWCI Restricted Voting -100 $34.9800
June 18, 2004 RWCI Restricted Voting -3,500 $35.0000
June 18, 2004 RWCI Restricted Voting -500 $35.1000
▇▇▇▇▇▇ Communications Inc........ October 13, 2004 RWCI Restricted Voting +48,594,172 $36.3700
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇................ June 25, 2004 RWCI Restricted Voting* +6,000 $32.7500
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇............... October 28, 2004 RWCI Restricted Voting* +25,000 $20.7400
October 28, 2004 RWCI Restricted Voting* +5,200 $16.8800
October 28, 2004 RWCI Restricted Voting -30,200 $45.2609
---------------
NOTE: * denotes exercise of options.
ISSUANCES OF SHARES
No RWCI Restricted Voting Shares (or securities convertible into RWCI
Restricted Voting Shares) have been issued to the directors or senior officers
of the Corporation during the two years preceding the date of the Directors'
Circular except as set out below:
NUMBER OF
NAME DATE NATURE OF TRANSACTION SECURITIES PRICE ($)
---- ---- --------------------- ---------- ---------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇.................. May 7, 2003 Option Grant 20,500 16.8800
November 12, 2003 Option Grant 17,400 25.9600
July 22, 2004 Option Exercise 7,500 11.8200
July 22, 2004 Option Exercise 13,725 16.4200
July 22, 2004 Option Exercise 6,500 15.6100
July 22, 2004 Option Exercise 3,125 28.7500
July 30, 2004 Option Exercise 6,200 20.7400
August 3, 2004 Option Exercise 7,975 20.7400
▇▇▇▇▇▇ ▇. ▇▇▇▇▇................... May 6, 2003 Option Grant 36,000 16.8800
November 12, 2003 Option Grant 22,800 25.9600
June 10, 2004 Option Exercise 9,000 16.8800
▇▇▇▇▇ Burgetz..................... November 20, 2002 Option Grant 25,000 12.2400
November 12, 2003 Option Grant 12,000 25.9600
July 22, 2004 Option Exercise 25,000 18.1500
▇▇▇▇▇▇ ▇. Chesham................. November 12, 2003 Option Grant 11,600 25.9600
February 17, 2004 Option Exercise 5,000 22.0600
February 17, 2004 Option Exercise 7,350 20.7400
February 17, 2004 Option Exercise 1,500 16.4200
August 4, 2004 Option Exercise 4,125 16.8800
H. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Q.C.,
ICD.D........................... November 12, 2003 Option Grant 1,600 25.9600
June 17, 2004 Option Exercise 4,000 32.7500
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇.............. April 22, 2003 Option Grant 2,400 16.8800
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇.................. May 6, 2003 Option Grant 31,100 16.8800
November 12, 2003 Option Grant 19,700 25.9600
July 22, 2004 Option Exercise 7,775 16.8800
12
NUMBER OF
NAME DATE NATURE OF TRANSACTION SECURITIES PRICE ($)
---- ---- --------------------- ---------- ---------
▇▇▇▇▇ ▇. ▇▇▇▇▇.................... April 22, 2003 Option Grant 2,400 16.8800
November 12, 2003 Option Grant 1,600 25.9600
▇▇▇▇▇▇ ▇. ▇▇▇▇.................... April 22, 2003 Option Grant 2,400 16.8800
November 12, 2003 Option Grant 1,600 20.8400
June 22, 2004 Option Exercise 6,000 32.7500
▇▇▇▇ ▇▇▇▇▇▇▇...................... November 12, 2003 Option Grant 11,600 25.9600
November 20, 2003 Option Exercise 12,000 12.2400
▇▇▇▇▇▇ ▇. ▇▇▇▇.................... April 22, 2003 Option Grant 18,900 16.8800
November 13, 2003 Option Grant 12,000 25.9600
February 13, 2004 Option Exercise 8,950 22.060
February 13, 2004 Option Exercise 37,500 20.7400
February 13, 2004 Option Exercise 6,244 16.4200
▇▇▇▇▇ ▇. ▇▇▇▇▇.................... April 22, 2003 Option Grant 34,300 16.8800
November 12, 2003 Option Grant 21,700 25.9600
June 24, 2004 Option Exercise 8,500 16.8800
▇▇▇▇▇ ▇▇▇▇▇▇▇..................... November 12, 2003 Option Grant 4,800 25.9600
February 6, 2004 Option Exercise 5,400 22.0600
February 6, 2004 Option Exercise 7,575 20.7400
February 6, 2004 Option Exercise 1,875 16.4200
February 6, 2004 Option Exercise 1,000 15.6100
June 30, 2004 Option Exercise 1,900 16.8800
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, CA.............. May 6, 2003 Option Grant 61,100 16.8800
November 12, 2003 Option Grant 38,700 25.9600
July 22, 2004 Option Exercise 15,275 16.8800
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇............. November 12, 2003 Option Grant 1,600 25.9600
June 24, 2004 Option Exercise 6,000 32.7500
The ▇▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, P.C.,
Q.C............................. April 22, 2003 Option Grant 2,400 16.8800
November 12, 2003 Option Grant 1,600 25.9600
June 10, 2004 Option Exercise 1,800 28.4100
June 18, 2004 Option Exercise 6,000 32.7500
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇................. November 12, 2003 Option Grant 1,600 25.9600
June 25, 2004 Option Exercise 6,000 32.7500
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇................ November 12, 2003 Option Grant 13,200 25.9600
February 6, 2004 Option Exercise 10,000 20.7400
February 17, 2004 Option Exercise 20,000 20.7400
October 28, 2004 Option Exercise 25,000 20.7400
October 28, 2004 Option Exercise 5,200 16.8800
J. ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇...... November 12, 2003 Option Grant 1,600 25.9600
OWNERSHIP OF SECURITIES OF OFFERORS
None of the Corporation, any of its directors or senior officers or, to the
knowledge of the directors and officers of the Corporation, after reasonable
enquiry, any associate of a director or senior officer of the Corporation, any
person or company holding more than 10% of any class of equity securities of the
Corporation or any person or company acting jointly or in concert with the
Corporation, beneficially owns, directly or indirectly, or exercises control or
direction over any outstanding securities of any class of securities of either
of the Offerors except:
13
NUMBER OF
NUMBER OF RCI
CLASS A NON-VOTING
VOTING SHARES SHARES NUMBER OF
OWNED OR OWNED OR PERCENTAGE OF PREFERRED SHARES
OVER WHICH PERCENTAGE OF OVER WHICH OUTSTANDING OWNED OR OVER PERCENTAGE OF
CONTROL OR OUTSTANDING CONTROL OR RCI WHICH CONTROL OUTSTANDING
DIRECTION IS CLASS A DIRECTION IS NON-VOTING OR DIRECTION IS PREFERRED
NAME EXERCISED VOTING SHARES EXERCISED SHARES EXERCISED SHARES
---- ------------- ------------- ------------ -------------- ---------------- -------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇..... Nil Nil 16,322 less than 1% Nil Nil
M. ▇▇▇▇▇▇▇▇ ▇▇▇▇..... Nil Nil 5,813 less than 1% Nil Nil
H. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
Q.C. ICD.D......... Nil Nil 3,265 less than 1% Nil Nil
▇▇▇ ▇. ▇▇▇▇▇▇........ Nil Nil 390 less than 1% Nil Nil
▇▇▇▇ ▇. ▇▇▇▇, CA..... Nil Nil 32,623 less than 1% Nil Nil
▇▇▇▇▇▇ ▇. ▇▇▇▇....... 254,200 less than 1% 9,800 less than 1% Nil Nil
▇▇▇▇▇ ▇. ▇▇▇▇▇▇...... Nil Nil 3,955 less than 1% Nil Nil
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
P.C., Q.C.......... Nil Nil 1,000 less than 1% Nil Nil
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
O.C. (1)........... 51,116,099 90.9% 18,626,225 10.4% Nil Nil
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇.... 1,000 less than 1% 34,265 less than 1% Nil Nil
---------------
(1) ▇▇. ▇▇▇▇▇▇ beneficially owns or controls 51,116,099 Class A Voting Shares,
representing approximately 90.9% of the issued and outstanding Class A
Non-Voting Shares and beneficially owns or controls 18,626,225 RCI
Non-Voting Shares representing approximately 10.4% of the issued and
outstanding RCI Non-Voting Shares.
RELATIONSHIPS BETWEEN OFFERORS
AND DIRECTORS AND OFFICERS OF THE CORPORATION
No arrangements or agreements (including any arrangements or agreements as
to any payment or other benefit to be made or given by way of compensation for
loss of office or as to the directors or officers of the Corporation remaining
in or retiring from office if the Offer is successful) have been made or are
proposed to be made between the Offerors and any of the directors or senior
officers of the Corporation as a consequence of the Offer.
The following directors and senior officers of the Corporation are also
directors or senior officers of RCI:
M. ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, CA
H. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Q.C., ICD.D. The ▇▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, P.C., Q.C.
▇▇▇▇ ▇. ▇▇▇▇, CA ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, O.C.
▇▇▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ J. ▇▇▇▇▇▇▇▇▇▇▇ ▇. Wansborough
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
RELATIONSHIPS BETWEEN THE CORPORATION AND ITS DIRECTORS AND OFFICERS
No arrangements or agreements (including any arrangements or agreements as
to any payment or other benefit to be made or given by way of compensation for
loss of office or as to the directors or officers of the Corporation remaining
in or retiring from office if the Offer is successful) have been made or are
proposed to be made between the Corporation and any of its directors or senior
officers as a consequence of the Offer.
INTEREST OF CERTAIN PERSONS IN MATERIAL CONTRACTS
None of the directors or senior officers of the Corporation nor their
respective associates or, to the knowledge of the directors and senior officers
of the Corporation, after reasonable enquiry, any person or company who owns
more than 10% of any class of equity securities of the Corporation (other than
RCI) has any interest in any material contract to which either of the Offerors
is a party.
14
MATERIAL CHANGES IN THE AFFAIRS OF THE CORPORATION
Except as otherwise described in the Offer and Circular or this Directors'
Circular, none of the directors or senior officers of the Corporation is aware
of any information that indicates any material change in the affairs or
prospects of the Corporation since the date of its last published financial
statements, being its interim unaudited financial statements for the 9 months
ended September 30, 2004.
RESPONSE OF THE CORPORATION
There is no transaction, board resolution, agreement in principle or signed
contract of the Corporation, other than as described in the Offer and Circular
or this Directors' Circular, which has occurred in response to the Offer. No
negotiations are underway in response to the Offer which relate to or would
result in (i) an extraordinary transaction such as a merger or reorganization
involving the Corporation or a subsidiary; (ii) the purchase, sale or transfer
of a material amount of assets by the Corporation or a subsidiary; (iii) an
issuer bid or other acquisition of securities by the Corporation; or (iv) any
material change in the capitalization or dividend policy of the Corporation.
OTHER INFORMATION
Except as otherwise described or referred to in the Offer and Circular,
this Directors' Circular, or otherwise publicly disclosed, no other information
is known to the directors or senior officers of the Corporation that would
reasonably be expected to affect the decision of the holders RWCI Restricted
Voting Shares to accept or reject the Offer.
STATUTORY RIGHT OF ACTION FOR DAMAGES
Securities legislation in certain of the provinces and territories of
Canada provides shareholders of the Corporation with, in addition to any other
rights they may have at law, a right of action for damages if there is a
misrepresentation in a circular or notice that is required to be delivered to
them. However, such rights must be exercised within prescribed time limits.
Shareholders should refer to the applicable provisions of the securities
legislation of their province or territory for particulars of those rights or
consult with a legal advisor.
Such rights are in addition to and without derogation from any other rights
such shareholder may have.
15
APPROVAL AND CERTIFICATE
DATED: November 24, 2004
The contents of this Directors' Circular have been approved, and the
delivery thereof has been authorized, by the Board of Directors.
The foregoing contains no untrue statement of a material fact and does not
omit to state a material fact that is required to be stated or that is necessary
to make a statement not misleading in the light of the circumstances in which it
was made. The foregoing does not contain any misrepresentation likely to affect
the value or the market price of the securities subject to the Offer.
On behalf of the Board of Directors
(Signed) ▇▇▇▇▇ ▇. ▇▇▇▇▇ (Signed) ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Director Director
16
CONSENT
To: The Board of Directors of
▇▇▇▇▇▇ Wireless Communications Inc.
We hereby consent to the reference to the valuation and fairness opinion of
our firm and the inclusion of the text of our valuation and fairness opinion
dated November 22, 2004, in the Directors' Circular of ▇▇▇▇▇▇ Wireless
Communications Inc.
(Signed) BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ Inc.
Toronto, Ontario
17
SCHEDULE "A"
VALUATION AND FAIRNESS OPINION
(BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ LOGO) INVESTMENT & CORPORATE BANKING
1 First Canadian Place
4th Floor, ▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇ ▇▇▇
Tel.: (▇▇▇) ▇▇▇-▇▇▇▇
November 22, 2004
The Independent Committee of the Board of Directors
▇▇▇▇▇▇ Wireless Communications Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Dear Sirs:
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ Inc. ("BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇") understands that ▇▇▇▇▇▇
Communications Inc. ("RCI") has proposed a share exchange take-over bid for all
of the outstanding ▇▇▇▇▇▇ Wireless Communications Inc. (the "Corporation) Class
B Restricted Voting shares ("RWCI Restricted Voting Shares") not owned by RCI on
the basis of 1.75 RCI Class B Non-Voting shares ("RCI Non-Voting Shares") for
each RWCI Restricted Voting Share held (the "Transaction"). BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇
also understands that RCI intends to take up and pay for any and all of the
publicly held shares that are tendered to the offer regardless of the actual
number of shares tendered, and that if a sufficient number of shares are
acquired under the offer, it is RCI's current intention that it would acquire
the remaining publicly held Corporation shares pursuant to a subsequent
compulsory acquisition or going private transaction. RCI currently owns 100% of
the Corporation's Class A Multiple Voting shares and approximately 81% of the
RWCI Restricted Voting Shares, representing an approximate 89% equity interest
and an approximate 98% voting interest in the Corporation.
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ further understands that further details of the Transaction
will be provided in the take-over bid circular to be mailed to the holders of
RWCI Restricted Voting Shares (the "Circular") and in the Directors' Circular of
the Corporation (the "Directors' Circular"). BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ also understands
that the Transaction is an "Insider Bid", as such term is defined in Rule 61-501
of the Ontario Securities Commission ("Rule 61-501") and Policy Q-27 of the
Quebec Autorite des marches financiers (collectively, the "Rules"), and that the
Circular will be prepared by RCI in compliance with applicable laws,
regulations, policies and rules (including the Rules).
A member of BMO [LOGO] Financial Group
________________________________________________________________________________
All insurance products are offered through
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ Financial Services Inc.
1
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ understands that a committee of members of the Board of
Directors of the Corporation (the "Board"), who are independent of RCI and its
principals (the "Independent Committee"), has been constituted to supervise the
preparation of a formal valuation and to report to the Board with its
recommendations in respect of the Transaction.
The Independent Committee has retained BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ to prepare and deliver
to the Independent Committee a formal valuation (the "Formal Valuation") of the
RWCI Restricted Voting Shares in accordance with the requirements of the Rules
and the Minority Shareholder Protection Agreement (the "MSPA") dated August 7,
1991 entered into by RCI and the Corporation, and to provide its opinion (the
"Fairness Opinion") as to the fairness, from a financial point of view, of the
consideration offered under the Transaction to the holders of RWCI Restricted
Voting Shares other than RCI (the "Minority Shareholders").
ENGAGEMENT OF BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇
The Independent Committee first contacted BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ on September 30,
2004 regarding a potential advisory assignment in connection with a possible
transaction involving a formal valuation of the Corporation. BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇
was formally retained by the Independent Committee to prepare, if requested, an
independent formal valuation in respect of such possible transaction, which at
the time was contemplated to be a possible substantial issuer bid by the
Corporation, pursuant to a letter agreement dated October 19, 2004 (the
"Original Engagement Agreement"). On November 11, 2004 an amending letter dated
November 10, 2004 amending the Original Engagement Agreement to reflect the
Transaction (the Original Engagement Letter, as so amended, being the
"Engagement Agreement") was executed. The terms of the Engagement Agreement
provide that BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ is to be paid a total fee of $1,300,000 for the
services to be rendered thereunder. In addition, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ is to be
reimbursed for its reasonable out-of-pocket expenses, including fees paid to its
legal counsel in respect of advice rendered to BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ in carrying out
its obligations under the Engagement Agreement, and is to be indemnified by the
Corporation in certain circumstances. No part of BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇' fee is
contingent upon the outcome of the Transaction or any other transaction.
On October 25, 2004, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ met with the Independent Committee to
present BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇' update on the process with respect to the assessment
of the value of the RWCI Restricted Voting Shares. On November 1, 2004, BMO
▇▇▇▇▇▇▇ ▇▇▇▇▇ provided the Independent Committee with a further update on the
status of the valuation work, advising the Independent Committee that BMO
▇▇▇▇▇▇▇ ▇▇▇▇▇ had completed a series of meetings with the Corporation's senior
management ("Management") and had received access to all required information.
After further due diligence and analysis, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ met again with the
Independent Committee on November 9, 2004 to review its subsequent work and
orally communicated BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇' preliminary view that the value of the
RWCI Restricted Voting Shares was in a range of $46.00 to $54.00 per share. BMO
▇▇▇▇▇▇▇ ▇▇▇▇▇ submitted
2
to the Independent Committee a written valuation presentation on November 11,
2004. On November 11, 2004, RCI publicly announced that it had proposed the
Transaction. On November 16, 2004 BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ conducted a due diligence
question and answer session with senior officers of RCI. On November 18, 2004,
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ met with the Independent Committee and reviewed the
consideration offered under the Transaction, confirmed the preliminary valuation
range of the RWCI Restricted Voting Shares and preliminarily confirmed that the
proposed share exchange ratio was fair from a financial point of view, all
subject to completion of due diligence. On November 22, 2004, having completed
its updating diligence and internal review and approval processes, BMO ▇▇▇▇▇▇▇
▇▇▇▇▇ met with the Independent Committee and reconfirmed, and delivered its
final valuation report setting forth, its formal valuation range of $46.00 to
$54.00 per share for the RWCI Restricted Voting Shares and opined that the
consideration offered under the Transaction is fair, from a financial point of
view, to the Minority Shareholders.
CREDENTIALS OF BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ is one of Canada's largest investment banking firms, with
operations in all facets of corporate and government finance, mergers and
acquisitions, equity and fixed income sales and trading, investment research and
investment management. BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ has been a financial advisor in a
significant number of transactions throughout North America involving public
companies in various industry sectors and has extensive experience in preparing
valuations and fairness opinions.
The Formal Valuation and the Fairness Opinion as of November 22, 2004 expressed
herein represent the opinions of BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ and the form and content
hereof have been approved by a group of BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇' directors and
officers, each of whom is experienced in mergers and acquisitions, divestitures,
valuations and fairness opinions.
INDEPENDENCE OF BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ acts as a trader and dealer, both as principal and agent, in
major financial markets and, as such, may have had, and may in the future have,
positions in the securities of the Corporation, Microcell Communications Inc.
("Microcell"), RCI or their respective associates or affiliates and, from time
to time, may have executed, or may execute, transactions on behalf of such
companies or clients for which it received or may receive compensation. As an
investment dealer, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ conducts research on securities and may, in
the ordinary course of its business, provide research reports and investment
advice to its clients on investment matters, including with respect to the
Corporation, RCI or their respective associates or affiliates or the
Transaction.
In addition, in the ordinary course of its business, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ or its
controlling shareholder, Bank of Montreal (the "Bank") or any of their
affiliated entities may have extended or may extend loans, or may have provided
or may provide other financial services, to the Corporation, Microcell, RCI or
their respective associates or affiliates. Except as
3
expressed herein, there are no understandings, agreements or commitments between
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ and the Corporation or RCI or any of their respective
associates or affiliates with respect to any future business dealings.
None of BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇, the Bank or any of their affiliated entities (as such
term is defined for purposes of the Rules:
(a) is an associated or affiliated entity or issuer insider (as such terms
are defined for purposes of the Rules of the Corporation or RCI or
their respective associates or affiliates;
(b) is an advisor to RCI in connection with the Transaction;
(c) is a manager or co-manager of a soliciting dealer group formed in
respect of the Transaction (or a member of such a group performing
services beyond the customary soliciting dealer's functions or
receiving more than the per security or per security holder fees
payable to the other members of the group); or
(d) has a financial incentive in respect of the conclusions reached in the
Formal Valuation or the Fairness Opinion or has a material financial
interest in the completion of the Transaction.
There are no agreements or understandings between BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ and any
interested parties in the Transaction concerning future business relationships.
Affiliates of BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ have (non-lead) roles in the underwriting
syndicate for the proposed high yield debt offerings by the Corporation and its
affiliates which roles are not, to the knowledge of BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇, related
in any manner to the engagement hereunder and do not affect BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇'
view as to its independence as expressed above. The Corporation and the
Independent Committee have acknowledged that such roles do not affect their
assessment of BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇' independence for purposes of this engagement.
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ is of the view that it is "independent" of all interested
parties in the Transaction for the purposes of the Rules.
SCOPE OF REVIEW
In connection with the Formal Valuation and the Fairness Opinion, BMO ▇▇▇▇▇▇▇
▇▇▇▇▇ reviewed, considered and relied upon (without attempting to verify
independently the completeness or accuracy thereof) or carried out, among other
things, the following:
o November 22, 2004 drafts of the Circular and Directors' Circular;
o audited consolidated financial statements of the Corporation,
Microcell and RCI for the five years ended and as at December 31,
1999, December 31, 2000, December 31, 2001, December 31, 2002, and
December 31, 2003;
4
o unaudited consolidated interim financial statements of the
Corporation, Microcell and RCI for the period ended and as at March
31, 2004, June 30, 2004 and September 30, 2004, with comparative
figures for the period ended and as at March 31, 2003, June 30, 2003
and September 30, 2003;
o management's discussion and analysis of the financial condition and
results of the operations of the Corporation, Microcell and RCI for
the five years ended and as at December 31, 1999, December 31, 2000,
December 31, 2001, December 31, 2002, and December 31, 2003 and for
the period ended March 31, 2004, June 30, 2004 and September 30, 2004;
o annual reports of the Corporation, Microcell and RCI for the fiscal
years ended December 31, 1999, December 31, 2000, December 31, 2001,
December 31, 2002, and December 31, 2003;
o annual information forms of the Corporation, Microcell and RCI for the
fiscal years ended December 31, 1999, December 31, 2000, December 31,
2001, December 31, 2002, and December 31, 2003;
o notices of annual meetings of shareholders and management information
circulars of the Corporation dated March 5, 2001, April 19, 2003 and
April 19, 2004;
o information circular and proxy statement pertaining to a plan of
reorganization under CCAA for Microcell dated February 17, 2003;
o press release issued by the Corporation on November 11, 2004
concerning the Transaction;
o Support Agreement dated September 19, 2004 between Microcell and the
Corporation;
o the Corporation's take-over bid circular for Microcell dated September
30, 2004 and Microcell Director's Circular dated September 30, 2004;
o Telus Corporation's take-over bid circular for Microcell dated May 17,
2004 and Microcell's Director's Circular rejecting the bid dated May
28, 2004;
o the offering memorandum dated February 17, 2004 for ▇▇▇▇▇▇ Wireless
Inc., an operating subsidiary of the Corporation, relating to the
issuance of senior notes;
o the preliminary offering memorandum dated November 15, 2004 for ▇▇▇▇▇▇
Wireless Inc., an operating subsidiary of the Corporation, relating to
the issuance of senior notes;
o 2004-2006 Corporation strategic plan (the "Strategic Plan") dated
February 3, 2004, presented to the Board;
5
o document presented by the Corporation to credit rating agencies during
the week of October 25, 2004;
o Board presentation regarding Microcell acquisition (dated September
16, 2004);
o selected projected financial information for the Corporation dated
October 29, 2004 for the fiscal year 2005 (the "2005 Budget") prepared
by Management;
o projected financial information for the Corporation for the fiscal
years ending December 31, 2004 through to December 31, 2009 prepared
by Management (the "Management Forecast") and confirmed as at November
11, 2004 and re-confirmed as at November 22, 2004;
o discussions with Management with respect to the information referred
to above and other issues considered relevant, including the outlook
for the Corporation (pro forma the Microcell acquisition);
o representations contained in a certificate addressed to BMO ▇▇▇▇▇▇▇
▇▇▇▇▇ dated November 10, 2004 from senior officers of the Corporation
(and confirmation of such certificate dated and delivered as of the
date hereof, as so confirmed the "Certificate") as to, among other
things, the completeness and accuracy of the information upon which
the Formal Valuation and the Fairness Opinion are based;
o discussions with members of the Independent Committee;
o discussions with ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, legal counsel to the Independent
Committee;
o discussions with management and counsel of RCI;
o various research publications prepared by equity research analysts and
independent market researchers regarding the wireless industry, the
Corporation, Microcell, RCI and other selected public companies
considered relevant;
o public information relating to the business, operations, financial
performance and stock trading history of the Corporation, Microcell,
RCI and other selected public companies considered relevant;
o public information with respect to transactions of a comparable nature
considered relevant;
o such other corporate, industry and financial market information,
investigations and analyses as BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ considered necessary
or appropriate in the circumstances.
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ has not, to the best of its knowledge, been denied access by
the Corporation to any information requested by BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇. BMO ▇▇▇▇▇▇▇
▇▇▇▇▇ had a due diligence discussion with senior officers of RCI and was not
denied any information. As
6
the auditors of the Corporation declined to accept responsibility for any
reliance that BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ might place upon information provided by them as
a part of any due diligence review, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ did not meet with the
auditors and has assumed the accuracy and fair presentation of and relied upon
audited financial statements of the Company and the reports of the auditors
thereon.
PRIOR VALUATIONS
The Corporation and RCI have represented to BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ that there have
not been any prior valuations (as defined in the Rules) of the Corporation,
Microcell or RCI or their respective material assets or securities in the past
24-month period.
ASSUMPTIONS AND LIMITATIONS
In accordance with the Engagement Agreement, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ has relied upon,
and has assumed the completeness, accuracy and fair presentation of, all
financial and other information, data, advice, opinions and representations
obtained by it from public sources or provided by the Corporation, RCI,
associates, affiliates, consultants, advisors and representatives including
information, data, and other materials filed on SEDAR and on ▇▇▇▇▇
(collectively, the "Information"). The Formal Valuation and the Fairness Opinion
are conditional upon the completeness, accuracy and fair presentation of the
said information. Subject to the exercise of its professional judgment, BMO
▇▇▇▇▇▇▇ ▇▇▇▇▇ has not attempted to verify independently the completeness,
accuracy or fair presentation of the Information.
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ has assumed that the forecasts, projections, estimates and
budgets of the Corporation (pro forma the Microcell acquisition) provided to us
and used in our analyses have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the Management and their
respective associates and affiliates as to matters covered thereby.
Senior officers of the Corporation have represented to BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ in the
Certificate that, among other things:
i. With the exception of forecasts, projections or estimates referred to
in paragraph (ii) or except as disclosed in writing by the Corporation
to BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ in connection with its engagement, the
Information, provided by or on behalf of the Corporation or any of its
subsidiaries to BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ in connection with its engagement
is, or in the case of historical information was, at the date of
preparation, to the best of each of the senior officer's knowledge,
true and accurate in all material respects and does not or did not, as
the case may be, contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein
not misleading in light of the circumstances in which such statements
were made.
ii. With respect to any portions of the Information that constitute
forecasts, projections or estimates provided to BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ in
connection with its engagement, such
7
forecasts, projections or estimates (i) were prepared using the
probable courses of actions to be taken during the period covered
thereby and the assumptions identified therein, which in the
reasonable belief of the Management of the Corporation are (or were at
the time of preparation) reasonable in the circumstances; and (ii) are
not, in the reasonable belief of the Management of the Corporation,
misleading in any material respect in light of the assumptions used or
in light of any developments since the time of their preparation.
iii. To the extent that any of the Information is historical, there have
been no changes or occurrences since the respective dates thereof that
render, or could reasonably be expected to render, any of that
Information untrue or misleading in any material respect that have not
been generally disclosed and reflected in documents filed on SEDAR or
disclosed in writing by the Corporation to BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ in
connection with its engagement or updated by more current information,
data or other materials provided to BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ in writing.
iv. Since the dates on which the Information was provided to BMO ▇▇▇▇▇▇▇
▇▇▇▇▇, no transaction material to the engagement of BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇
has been entered into or contemplated by the Corporation, and there is
no plan or proposal for any restructuring of, or material changes in,
the business or affairs of the Corporation or any of its divisions,
subsidiaries or other material interests, which has not been disclosed
to BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ or otherwise publicly disclosed and reflected in
documents filed on SEDAR.
v. The Corporation and its divisions, subsidiaries and other material
interests have no material contingent liabilities or assets other than
as disclosed in the Information.
vi. Except as publicly disclosed and reflected in documents filed on SEDAR
or as disclosed to BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ by the Corporation in writing in
connection with its engagement, to the best of the Corporation's
knowledge,
a) the Corporation has no plans, and Management is not aware of any
circumstances or developments, that could reasonably be expected
to have a material effect on the assets, liabilities, financial
condition, prospects or affairs of the Corporation;
b) there are no appraisals or valuations known to Management
relating to the Corporation or any of its securities or material
assets or subsidiaries, including Microcell, that have been
prepared in the preceding 24 months, and no valuation or
appraisal relating to any of the foregoing has been commissioned
by or on behalf of the Corporation or any of its subsidiaries or
is known to Management to be in the course of preparation;
c) no offers or negotiations relating to the purchase or sale of any
material assets of the Corporation or with respect to all or a
material portion of the securities of the Corporation have been
made or received in the preceding 24 months;
8
d) neither the Corporation nor any subsidiaries of the Corporation
has any material contingent liability or contingent asset on a
consolidated or non-consolidated basis; and
e) there are no actions, suits, proceedings or inquiries pending or
threatened against or affecting the Corporation or any of the
subsidiaries of the Corporation at law or in equity or before any
federal, state, provincial, municipal or other governmental
department, court, commission, bureau, board, agency or
instrumentality, which could reasonably be expected to materially
and adversely affect the Corporation or any of its subsidiaries.
vii. There are no facts regarding the Corporation or any of its
subsidiaries, assets, liabilities, affairs, prospects or condition
(financial or otherwise) that have not been disclosed to BMO ▇▇▇▇▇▇▇
▇▇▇▇▇ in the Information that could reasonably be expected to
materially affect the Corporation or any of its subsidiaries, the RWCI
Restricted Voting Shares or the Formal Valuation and the Fairness
Opinion.
viii. There is no fact regarding RCI or any of its subsidiaries, assets,
liabilities, affairs, prospects or condition (financial or otherwise)
that have not been disclosed to BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ in the Information
that could reasonably be expected to materially affect RCI, the RCI
Shares or the Fairness Opinion.
ix. The Corporation has complied in all material respects with the terms
and conditions of the Engagement Agreement.
The Formal Valuation and the Fairness Opinion are rendered on the basis of
securities markets, economic, financial and general business conditions
prevailing as of November 22, 2004, and the condition and prospects, financial
and otherwise, of the Corporation, subsidiaries and other material interests as
they were reflected in the Information reviewed by BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇. In its
analyses and in preparing the Formal Valuation and the Fairness Opinion, BMO
▇▇▇▇▇▇▇ ▇▇▇▇▇ made numerous judgments with respect to industry performance,
general business, market and economic conditions and other matters, many of
which are beyond the control of any party involved in the Transaction. All
financial figures herein are expressed in Canadian dollars except where
otherwise noted. Certain figures have been rounded for presentation purposes.
The Formal Valuation and the Fairness Opinion are provided as of November 22,
2004, and BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ disclaims any undertaking or obligation to advise
any person of any change in any fact or matter affecting the Formal Valuation or
the Fairness Opinion of which it may become aware after November 22, 2004.
Without limiting the foregoing, in the event that there is any material change
in any fact or matter affecting the Formal Valuation or the Fairness Opinion
after such date, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ reserves the right to change, modify or
withdraw the Formal Valuation or the Fairness Opinion.
9
The Formal Valuation and the Fairness Opinion have been prepared and provided
solely for the use of the Independent Committee and the Board and for inclusion
in the Circular and the Corporation's Director's Circular relating to the
Transaction ("Director's Circular"), and may not be used or relied upon by any
other person without our express prior written consent. Subject to the terms of
the Engagement Agreement, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ consents to the publication of the
Formal Valuation and the Fairness Opinion in their entirety and a summary
thereof (in a form acceptable to BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇) in the Circular and
Director's Circular relating to the Transaction and to the filing thereof, as
necessary, by the Corporation with the securities commissions or similar
regulatory authorities in Canada and the U.S.
We express no opinion herein concerning the future trading prices of the
securities of the Corporation or RCI and make no recommendation to the Minority
Shareholders with respect to the Transaction.
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ has based the Formal Valuation and the Fairness Opinion upon a
variety of factors. Accordingly, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ believes that its analyses
must be considered as a whole. Selecting portions of its analyses or the factors
considered by BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇, without considering all factors and analyses
together, could create a misleading view of the process underlying the Formal
Valuation and the Fairness Opinion. The preparation of a valuation is a complex
process and is not necessarily susceptible to partial analysis or summary
description. Any attempt to do so could lead to undue emphasis on any particular
factor or analysis.
OVERVIEW OF THE CORPORATION
The Corporation is a leading Canadian wireless communications service provider,
serving more than 4.2 million customers at September 30, 2004, including over
4.0 million wireless voice and data subscribers and approximately 211,000
one-way messaging (paging) subscribers. The Corporation operates both a
GSM(1)/GPRS(2) network, with EDGE(3) technology, and a seamless integrated
TDMA(4) and analog cellular network. The GSM/GPRS/EDGE network provides coverage
to approximately 93% of Canada's population. The seamless TDMA and analog
network provides coverage to approximately 85% of the Canadian population in
digital mode, and approximately 93% of the population in analog mode. The
Corporation estimates that its more than 4.0 million wireless voice and data
subscribers represent approximately 13.6% of the Canadian population residing in
its coverage area and approximately 28% of the wireless voice and data
subscribers in Canada. Subscribers to its wireless services have access to these
services in the United States through the Corporation's roaming agreements with
various U.S. wireless operators. The Corporation's subscribers also have
wireless access internationally in over 140 countries, including throughout
Europe, Asia and Latin America, through roaming agreements with other wireless
providers. The
------------
(1) GSM - Global System for Mobile Communication
(2) GPRS - General Packet Radio Service
(3) EDGE - Enhanced Data for GSM Evolution
(4) TDMA - Time Division Multiple Access
10
Corporation is a public company, and was 89.2% owned by RCI at October 31, 2004,
with the balance publicly held.
On September 20, 2004, the Corporation announced an agreement with Microcell to
make an all cash offer of $35.00 per share to acquire Microcell, Canada's fourth
largest wireless communications provider. The Corporation announced the
successful completion of that acquisition on November 11, 2004. The Corporation
expended approximately $1.6 billion in connection with its acquisition of
Microcell, including the repayment of Microcell's bank debt and swap
obligations, prepayment penalties, investment banking advisory fees and other
related costs, net of Microcell's cash on hand. On a pro forma basis with the
acquisition of Microcell, the Corporation became the largest wireless operator
in Canada with more than 5.5 million customers, including approximately 5.3
million wireless voice and data customers.
For the twelve months ended September 30, 2004, the Corporation (excluding
Microcell) had revenue of $2,560.0million, earnings before interest,
depreciation, amortization and taxes ("EBITDA") of $891.0 million and net income
of $162.6 million. At September 30, 2004 the Corporation (excluding Microcell)
had total assets of $3,201.2 million and net debt of $1,947.2 million.
HISTORICAL FINANCIAL INFORMATION
The following table summarizes the Corporation's consolidated operating results
for the five fiscal years up to and including the fiscal year ended December 31,
2003 and for the nine months ended September 30, 2004 and September 30, 2003:
Unaudited
-------------------------
NINE MONTHS NINE MONTHS
FISCAL YEAR ENDED ENDED
-------------------------------------------------------------- Sept. 30, Sept. 30,
1999 2000 2001 2002 2003 2003 2004
---------- ---------- ---------- ---------- ---------- ----------- -----------
FINANCIAL PERFORMANCE ($ thousands)
Postpaid (voice and data)............. $1,171,471 $1,350,587 $1,464,423 $1,628,095 $1,911,073 $1,408,324 $1,678,470
Prepaid............................... 23,849 42,530 71,068 91,151 91,255 64,013 75,211
One-way messaging..................... 51,793 55,992 43,632 35,238 27,565 21,123 18,652
---------- ---------- ---------- ---------- ---------- ---------- ----------
Network revenue....................... 1,247,113 1,449,109 1,579,123 1,754,484 2,029,893 1,493,460 1,772,333
Equipment revenue..................... 107,252 95,774 61,766 137,030 177,901 124,735 197,564
Total operating revenue............... 1,354,365 1,544,883 1,640,889 1,891,514 2,207,794 1,618,195 1,969,897
Operating profit (1).................. 412,477 400,550 401,261 516,681 716,236 552,149 727,535
Operating Margin...................... 30.5% 25.9% 24.5% 27.3% 32.4% 34.1% 36.9%
Net income (loss)..................... 8,582 (90,667) (224,692) (90,705) 137,841 136,490 161,202
Cash flow from operations (2)......... 318,960 262,870 211,773 310,641 521,957 402,591 573,216
PP&E expenditures (excluding spectrum
licence costs) (3)................. 400,959 525,993 654,457 564,552 411,933 292,865 305,790
Per share
Weighted average outstanding shares -
diluted (000s)..................... 103,902 122,366 135,652 141,608 141,773 141,957 143,672
Net income (loss) per share - basic... 0.08 (0.74) (1.66) (0.64) 0.97 0.96 1.13
------------
1. Operating profit is defined as net income before depreciation and
amortization, interest expense, income taxes, non-operating items and
special charges and is often referred to as EBITDA
2. Cash flow from operations before changes in non-cash operating items
3. Spectrum licences for the deployment of next generation wireless services
across Canada were acquired in February 2001 at a total cost of $396.8
million
Source: Corporation's public filings.
11
The following table summarizes the Corporation's consolidated balance sheet
statements as at the end of the fiscal years 1999 to 2003, and as at the end of
the nine months in fiscal years 2004 and 2003:
Unaudited
------------------------
AS AT THE END OF FISCAL YEAR AS AT AS AT
----------------------------------------------------------------- SEPT. 30, SEPT. 30,
($ thousands) 1999 2000 2001 2002 2003 2003 2004
---------- ---------- ---------- ---------- ---------- ---------- ----------
Cash................................ - - - 10,068 - - $111,291
Other current assets................ 179,564 215,696 258,293 289,907 363,829 369,950 401,856
Property, plant and equipment....... 1,778,545 1,972,110 2,252,328 2,371,133 2,299,919 2,302,200 2,249,063
Other............................... 194,069 221,481 716,040 631,604 443,595 467,851 439,020
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL ASSETS........................ $2,152,178 $2,409,287 $3,226,661 $3,302,712 $3,107,343 $3,140,001 $3,201,230
========== ========== ========== ========== ========== ========== ==========
Current liabilities................. $396,969 $394,876 $367,033 $507,789 $437,813 $484,319 $366,765
Long-term debt...................... 1,483,215 1,540,013 2,471,287 2,472,620 2,070,761 2,111,654 1,946,308
Other long-term liabilities......... 284,450 - 21,847 155,689 105,015 256,798
Shareholders' equity................ 271,994 189,948 388,341 300,456 443,080 439,013 631,359
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY................ $2,152,178 $2,409,287 $3,226,661 $3,302,712 $3,107,343 $3,140,001 $3,201,230
========== ========== ========== ========== ========== ========== ==========
Source: Corporation's public filings
The following table summarizes Microcell's consolidated operating results for
the five fiscal years up to and including the fiscal year ended December 31,
2003 and for the nine months ended September 30, 2004 and September 30, 2003:
PRE-RE- POST-RE-
ORGANIZA- ORGANIZA-
TION TION UNAUDITED
--------- --------- --------------------
FOUR EIGHT FIVE NINE
MONTHS MONTHS MONTHS MONTHS
AS AT THE END OF FISCAL YEAR ENDED ENDED ENDED ENDED
------------------------------------------ Apr. 30, Dec. 31, Sept. 30, Sept. 30,
1999 2000 2001 2002 2003 2003 2003 2004
--------- --------- --------- --------- --------- --------- --------- ---------
FINANCIAL PERFORMANCE ($ thousands)
Services .......................... $ 228,375 $ 365,665 $ 509,082 $ 566,706 $ 170,196 $ 357,483 $ 222,866 $ 445,935
Products .......................... 32,091 40,321 32,408 24,356 7,498 35,610 18,793 36,168
Total operating revenue ........... 260,466 405,986 541,490 591,062 177,694 393,093 241,659 482,103
Operating profit (1) .............. (162,982) (112,332) (9,803) 91,012 38,556 48,021 49,690 90,386
Operating Margin .................. -62.6% -27.7% -1.8% 15.4% 21.7% 12.2% 20.6% 20.3%
Net income (loss) ................. (393,637) (268,427) (498,485) (570,501) 45,517 4,959 16,207 (22,998)
Cash flow from operations (2) ..... (189,098) (136,693) (69,951) (71,020) (12,148) 36,938 34,411 41,411
PP&E expenditures ................. 133,572 257,191 277,395 124,683 5,500 67,318 30,648 198,159
Per share
Weighted average outstanding shares
- diluted (000s) ............... 82,861 97,244 112,524 240,457 240,470 22,899 263,358 24,236
Net income (loss) per share ....... (4.75) (2.76) (4.43) (2.37) 0.19 0.22 0.06 (0.95)
-----------
1. Operating profit is defined as net income before depreciation and
amortization, interest expense, income taxes, non-operating items and
special charges and is often referred to as EBITDA
2. Cash flow from operations before changes in non-cash operating items
Source: Microcell's public filings
12
The following table summarizes Microcell's consolidated balance sheet statements
as at the end of the fiscal years 1999 to 2003, and as at the end of the nine
months in fiscal years 2004 and 2003:
POST-
REORGINIZATION Unaudited
--------------- -------------------------
AS AT THE END OF FISCAL YEAR AS AT AS AT AS AT
------------------------------------------------------ DEC. 31, SEPT. 30, SEPT. 30,
($ thousands) 1999 2000 2001 2002 2003 2003 2004
----------- ----------- ----------- ----------- --------------- ----------- -----------
Unaudited
Cash ........................ $ 125,932 $ 87,378 $ 19,005 $ 26,979 $ 43,094 $ 147,037 $ 110,977
Short-term investments ...... 24,377 196,667 159,524 83,345 60,927 -- 22,804
Other current assets ........ 103,235 153,677 146,963 121,032 148,028 120,381 200,425
Property, plant and equipment 515,645 662,411 764,048 655,646 318,041 296,456 462,161
Other ....................... 45,949 109,093 305,719 15,062 238,616 233,591 264,178
----------- ----------- ----------- ----------- ----------- ----------- -----------
TOTAL ASSETS ................ $ 815,138 $ 1,209,226 $ 1,395,259 $ 902,064 $ 808,706 $ 797,465 $ 1,060,545
=========== =========== =========== =========== =========== =========== ===========
Current liabilities ......... $ 110,121 $ 191,499 $ 161,417 $ 166,612 $ 149,608 $ 118,783 $ 197,109
Long-term debt .............. 1,499,456 1,680,699 1,887,048 2,032,678 315,164 323,500 385,356
Other long-term liabilities . 4,310 4,589 73,519 -- -- -- --
Shareholders' equity ........ (798,749) (667,561) (726,725) (1,297,226) 343,934 355,182 478,080
----------- ----------- ----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ....... $ 815,138 $ 1,209,226 $ 1,395,259 $ 902,064 $ 808,706 $ 797,465 $ 1,060,545
=========== =========== =========== =========== =========== =========== ===========
Source: Microcell's public filings
PRO FORMA FINANCIALS
The following table summarizes select unaudited pro forma (including Microcell)
consolidated operating information for the nine months ended September 30, 2004
and year ended December 31, 2003 and balance sheet data for the period ending
September 30, 2004.
13
UNAUDITED PRO FORMA CONSOLIDATED DATA
YEAR ENDED 9 MONTHS ENDED
DEC 31 2003 SEPT 30 2004
------------- --------------
STATEMENT OF INCOME DATA:
Operating revenue............................... $2,761,713 $2,429,950
Cost of equipment sales ........................ 497,739 440,568
Sales and marketing expenses.................... 446,860 348,695
Operating, general and administrative expenses.. 1,006,925 837,557
Management fees................................. 11,336 8,756
---------- ----------
Operating profit................................ $ 798,853 $ 794,374
Other........................................... - 9,668
Depreciation and amortization................... 637,660 426,995
---------- ----------
Operating income................................ $ 161,193 $ 357,711
Interest expense, net........................... 491,171 321,278
Foreign exchange loss (gain).................... (285,721) 62,126
Loss on repayment on long-term debt............. 9,046
Change in the fair value of derivative
instruments.................................. 2,313
Other expense (income), net..................... (4,357) (1,532)
---------- ----------
Loss before income taxes........................ $ (39,900) $ (35,520)
Income taxes.................................... 4,776 6,905
---------- ----------
Loss for the period............................. $ (44,676) $ (42,425)
========== ==========
Basic and diluted loss per share................ $ (0.44) $ (0.33)
AS AT
SEPT 30, 2004
--------------
BALANCE SHEET DATA:
Property, plant and equipment, net................................. $ 2,418,263
Goodwill........................................................... 893,425
Total assets....................................................... 6,810,571
Long-term debt..................................................... 5,194,444
Shareholder's equity (deficiency).................................. 631,359
Source: The Corporation
RWCI RESTRICTED VOTING SHARES TRADING INFORMATION
The RWCI Restricted Voting Shares are listed on the Toronto Stock Exchange (the
"TSX") under the symbol RCM.NV.B and on the New York Stock Exchange ("NYSE")
under the symbol RCN. The following table sets forth, for the periods indicated,
the low and high closing prices of the RWCI Restricted Voting Shares and the
volumes traded on both the TSX and NYSE:
14
RWCI RESTRICTED VOTING SHARES RWCI RESTRICTED VOTING SHARES
----------------------------- -----------------------------
TSX CLOSING PRICE NYSE CLOSING PRICE
PERIOD (C$) VOLUME (US$) VOLUME
--------------------------- ----------------- ------- ------------------ ------
High Low (000's) High Low (000's)
------ ------ ------ ------ ------ ------
2003
January ................... $17.35 $14.14 1,076 $11.39 $ 9.08 81
February .................. 17.00 14.87 533 11.30 9.85 101
March ..................... 16.30 13.61 959 10.99 9.17 78
April ..................... 19.30 15.85 648 13.56 10.85 60
May ....................... 21.00 18.50 740 15.29 13.05 123
June ...................... 23.28 20.76 552 17.36 15.20 86
July ...................... 24.15 22.25 334 17.17 16.36 77
August .................... 23.85 20.72 447 16.98 14.90 61
September ................. 21.74 20.70 603 15.92 14.97 55
October ................... 25.85 21.92 1,846 19.65 16.33 354
November .................. 28.24 25.50 1,302 21.45 19.15 304
December .................. 28.95 26.30 960 22.28 20.27 239
January 1 to December 31 .. 28.95 13.61 10,001 22.28 9.08 1,617
2004
January ................... $36.53 $28.25 1,643 $28.15 $21.88 677
February .................. 36.27 33.75 1,267 27.16 25.32 327
March ..................... 34.90 32.30 985 26.45 24.35 230
April ..................... 36.75 33.30 1,752 27.14 24.42 334
May ....................... 37.20 31.06 2,108 27.30 22.42 420
June ...................... 36.66 34.91 1,232 27.16 25.59 165
July ...................... 39.25 35.76 1,368 29.57 27.05 649
August .................... 39.99 39.00 695 30.59 28.84 439
September ................. 40.00 36.05 1,735 31.42 27.97 406
October ................... 46.10 39.69 695 37.55 31.44 189
November 1 to November 10 . 45.60 42.75 211 38.02 35.29 187
November 11 to November 19 52.50 49.30 3,509 43.96 41.17 233
January 1 to November 19 .. 52.50 28.25 17,200 43.96 21.88 4,256
The closing price of the RWCI Restricted Voting Shares on the TSX on November
10, 2004, the trading day immediately prior to the announcement of the
Transaction, was $43.17.
VALUATION OF THE RWCI RESTRICTED VOTING SHARES
DEFINITION OF FAIR MARKET VALUE
For the purposes of the Formal Valuation, fair market value means the highest
price, expressed in terms of money or money's worth, available in an open and
unrestricted market between informed and prudent parties, each acting at arm's
length, where neither party is under any compulsion to act.
In accordance with the Rules and the MSPA, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ has made no
downward adjustment to the fair market value of the RWCI Restricted Voting
Shares to reflect the liquidity of the RWCI Restricted Voting Shares, the effect
of a transaction pursuant to which the controlling shareholder would acquire all
of the RWCI Restricted Voting Shares not owned by the controlling shareholder or
the fact that the RWCI Restricted Voting Shares held by individual shareholders
do not form part of a controlling interest. A valuation prepared on the
foregoing basis is referred to as an "en bloc" valuation.
APPROACH TO VALUE
The Formal Valuation is based upon techniques and assumptions that BMO ▇▇▇▇▇▇▇
▇▇▇▇▇ considered appropriate in the circumstances for the purposes of arriving
at an opinion as to the range of fair market values of the RWCI Restricted
Voting Shares. The fair market value of
15
the RWCI Restricted Voting Shares was analyzed on a going concern basis, which
included the acquisition of Microcell and is expressed on a per share basis.
The Formal Valuation and the Fairness Opinion have been prepared in accordance
with the Disclosure Standards for Formal Valuations and Fairness Opinions of the
▇▇▇, but the ▇▇▇ has not been involved in the preparation or review of either
the Formal Valuation or the Fairness Opinion.
VALUATION METHODOLOGIES AND ANALYSIS
For the purposes of determining the value of the RWCI Restricted Voting Shares,
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ relied on three methodologies:
o discounted cash flow ("DCF") approach;
o comparable trading approach; and
o precedent transaction approach.
DISCOUNTED CASH FLOW APPROACH
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ considered the DCF approach in determining the fair market
value of the RWCI Restricted Voting Shares. The DCF methodology reflects the
growth prospects and risks inherent in the Corporation's business by taking into
account the amount, timing and relative certainty of projected unlevered free
cash flows expected to be generated by the Corporation. The DCF approach
requires that certain assumptions be made regarding, among other things, future
unlevered free cash flows, discount rates and terminal values. The possibility
that some of the assumptions will prove to be inaccurate is one factor involved
in the determination of the discount rates to be used in establishing a range of
values. BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇' DCF approach involved discounting to a present value
the Corporation's projected unlevered after-tax free cash flows from November 9,
2004 until December 31, 2009 in the Management Forecast (defined below) and the
terminal value determined as of December 31, 2009. The Management Forecast and
the resulting cash flow forecasts were all pro forma the acquisition of
Microcell.
MANAGEMENT FORECAST
As a basis for the projected future cash flows developed for the DCF analysis,
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ received from Management a set of assumptions for the period
2004 - 2009 underlying the Management Forecast. After review of those
assumptions and discussion of the same with Management, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇
concluded that the Management Forecast formed a satisfactory basis for the DCF
analysis. The only exception was Management's forecast of a sale of certain
spectrum in 2006. BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ was not convinced as to the likelihood or
marketability of this asset sale, and therefore, chose to remove it from the
Management Forecast in developing the final assumptions for the DCF analysis.
16
\
ASSUMPTIONS AND KEY DRIVERS
The following is a summary of the assumptions for the Management Forecast, which
was prepared by Management as of November 9, 2004 (and confirmed as at November
22, 2004), and deemed reasonable by Management.
Corporation and Microcell Forecasts: Management provided separate assumptions
regarding the Corporation's and Microcell's separate subscriber bases for the
years 2005 and 2006. However, by 2007 most of the assumptions were applied
equally to the combined pro forma subscriber base, excluding some assumptions
for the legacy Microcell subscribers assumed to be retained (e.g. ARPU, defined
below). Microcell customers assumed to be lost and subsequently reacquired by
the Corporation were treated as new customers and the appropriate cost of their
acquisition was accounted for.
Market Penetration: Canadian wireless market penetration was forecasted to rise
from 51.1% in 2005 to 65.0% in 2009. Various third-party analysts produced a
range of penetration forecasts. BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ was comfortable that
Management's forecasts were reasonable when compared to these ranges and to
penetration and growth rates achieved in other countries of greater maturity,
most notably the United States.
Market Share of Net Subscriber Additions ("Net Adds"): Management's forecast for
the Corporation's market share of net postpaid subscriber additions ("net adds")
was based on a three participant expectation with respect to the market, and
declined from 35.2% in 2005 to 32.0% in 2009. For prepaid net adds the figures
were 23.0% to 28.3% respectively. The prepaid market share of Net Adds was less
than the postpaid's on account of the Corporation's overall greater strategic
focus on the postpaid market and the potential for new entrants.
Monthly Churn(5): Monthly churn for the Corporation's postpaid subscribers was
forecasted by Management to be 1.7% in 2005 and 1.8% in 2006 (the increase
reflected an assumed introduction of wireless number portability in 2006),
declining to 1.4% in 2009. For the Corporation's prepaid subscribers the
forecast was 3.1% in 2005, declining to 2.7% in 2009, reflecting the higher
churn rates experienced in the prepaid market.
Postpaid Microcell subscriber churn was forecast to be 3.5% and 2.5% in 2005 and
2006 respectively, reflecting aggressive targeting of Microcell subscribers by
competitors immediately following Microcell's acquisition by the Corporation.
Prepaid Microcell subscriber churn was forecast to be 4.0% and 3.0% in 2005 and
2006 respectively. Of the Microcell 2005 and 2006 total subscribers assumed to
be lost, Management forecasted reacquiring 66% and 42% respectively. Microcell
churn rates from 2007 onward were forecasted to match churn rates for the
Corporation.
Average Revenue Per User ("ARPU") Growth Rates: ARPU for the Corporation
subscribers and net adds was forecasted to change at a '05-'09 Compound Annual
Growth Rate ("CAGR")
------------
(5) Churn: The number of subscribers deactivating in a month divided by the
average number of subscribers for the month.
17
of -1.3% for postpaid and 3.1% for prepaid. For Microcell legacy subscribers
ARPU was forecast to decline at a '05-'09 CAGR of -1.6% for postpaid and 0.0%
for prepaid.
The ARPU forecasts did not include data revenue, which was forecasted separately
as a percentage of total network revenue climbing from 6.2% in 2005 to 14.5% in
2009. These are moderately higher proportions of net revenue than some
independent analysts forecasted for the overall market, but given the
Corporation's leadership position in this product category and the better than
expected growth rates the Corporation had experienced to date, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇
was comfortable with Management's forecast. Coinciding with this data revenue
growth were appropriate fixed and variable cost growth assumptions.
Capital Expenditures: Pro forma average capital expenditures over the '05-'09
period were $523 million with increases in 2007 and 2009 for specific forecasted
UMTS(6) spend. Gross capital expenditure savings from the combination with
Microcell were forecasted to be $270 million (un-discounted) over the '05-'09
period. The bulk of the savings represent reductions in the Corporation's
planned network spend no longer required given the cell sites acquired as part
of the Microcell acquisition.
Cost of Customer Acquisition: The cost of acquiring a new customer was kept
constant for both post- and prepaid subscribers throughout the forecast period
at a 2% discount to Management's 2004 forecast level.
Operating Costs: Operating cost assumptions were forecasted to experience flat
relative growth, i.e. variable costs were forecasted flat per subscriber and
fixed costs items generally grew in line with subscriber growth. Overall
operating costs were forecasted to grow at a '05-'09 CAGR of 6.0% relative to a
network revenue '05-'09 CAGR of 7.1%.
Tax Losses: BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ determined the present value of the Corporation's
tax losses separately from the operating cash flows in the DCF analysis. Both
the Corporation's and Microcell's available tax losses were recognized: $1.0
billion for the Corporation and $1.8 billion for Microcell. Management provided
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ with details of both companies' pools of available tax losses
and forecast that all tax loss pools would be accessible to the Corporation
going forward, with no pools expiring unused.
UNLEVERED AFTER-TAX FREE CASH FLOW
For the purposes of deriving projected unlevered after-tax free cash flows for
use in the DCF analysis, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ reviewed the Management Forecast and
relevant underlying assumptions and considered the resulting revenue growth and
EBITDA margins. These assumptions were compared to the Corporation's Strategic
Plan, Budget, industry research reports, forecasts by equity research analysts
and other sources considered relevant. Based on such review, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇
concluded that the Management Forecast appeared
------------
(6) UMTS: Universal Mobile Telecommunications System
18
reasonable in the context of both historic trends, independent forecasts for the
industry and the experiences observed in other international wireless markets of
greater maturity.
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ believes that the assumptions underlying the Management
Forecast accurately reflected the prospects of the Corporation over the forecast
period, and further believes the Corporation will reach steady state by the end
of such forecast period. Therefore, BMO ▇▇▇▇▇▇▇ Burns's DCF analysis
incorporated a 5-year projection followed by a terminal value calculation based
on 2009 projected cash flows and a sustainable capital expenditure level,
indicated by Management to be $525 million.
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ applied the statutory tax rate of 36.3% and adjusted working
capital based on historically observed assumptions.
The following is a summary of the unlevered after-tax free cash flow projections
used in the DCF analysis:
FISCAL YEAR,
---------------------------------------------------------------
FREE CASH FLOW ($ millions) 2005(1) 2006(1) 2007 2008 2009 Terminal
----------------------------------- ------- ------- ------- ------- ------- --------
Network revenue ................... $ 3,308 $ 3,594 $ 3,863 $ 4,131 $ 4,351 $ 4,438
EBITDA(1) ......................... 1,000 1,436 1,619 1,806 1,929 1,968
Unlevered cash taxes .............. (152) (286) (370) (451) (481) (490)
Capital expenditures .............. (577) (457) (546) (425) (611) (525)
Increase in deferred taxes ........ 17 (13) (0) 7 (11) 0
Changes in non-cash working capital 12 (8) (7) (22) 0 2
------- ------- ------- ------- ------- -------
UNLEVERED AFTER-TAX FREE CASH FLOW $ 300 $ 673 $ 695 $ 915 $ 827 $ 954
------------
1. Includes forecasted one-time costs of $225 million in 2005 and $2 million
in 2006, relating to the Microcell acquisition
DISCOUNT RATES
Projected unlevered after-tax free cash flows for the Corporation developed from
the Management Forecast were discounted based on the estimated weighted average
cost of capital ("WACC") for the Corporation. The WACC was calculated based upon
the Corporation's after-tax cost of debt and equity, weighted based upon an
assumed optimal capital structure. The assumed optimal capital structure was
determined based upon a review of the capital structures of comparable companies
and the risks inherent in the Corporation's business and in the North American
wireless industry generally. The cost of debt for the Corporation was calculated
based on the risk free rate of return and an appropriate borrowing spread to
reflect credit risk at the assumed optimal capital structure. BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇
used the capital asset pricing model ("CAPM") approach to determine the
appropriate cost of equity. The CAPM approach calculates the cost of equity with
reference to the risk-free rate of return, the risk of equity relative to the
market ("beta") and the market equity risk premium. BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ reviewed a
range of unlevered betas for the Corporation and a select group of comparable
companies that have risks similar to the Corporation in order to select the
appropriate unlevered beta for the Corporation. The significance of the observed
betas was limited due to i) there being few comparable companies in North
America; and ii) the low
19
statistical significance of the individual betas as measured by the R-squared of
their regressions. The selected unlevered beta was re-levered using the assumed
optimal capital structure and then used to calculate the cost of equity. BMO
▇▇▇▇▇▇▇ ▇▇▇▇▇ also reviewed and considered levered betas generated by an
independent third party financial consultant for the comparable companies and
North American wireless industry.
The assumptions used by BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ in estimating the WACC for the
Corporation were as follows:
COST OF DEBT
Risk free rate (10-Year Government of Canada Bond) ................ 4.5%
Borrowing spread .................................................. 3.3%
Pre-tax cost of debt .............................................. 7.7%
Tax rate .......................................................... 36.3%
After-tax cost of debt ............................................ 4.9%
COST OF EQUITY
Risk free rate (10-Year Government of Canada Bond) ................ 4.5%
Equity risk premium ............................................... 6.0%
Levered beta ...................................................... 1.3
After-tax cost of equity .......................................... 12.3%
WACC
Optimal capital structure (% debt) ................................ 40.0%
WACC .............................................................. 9.3%
Based upon the foregoing and taking into account sensitivity analyses on the
variables discussed above and the assumptions used in the Management Forecast,
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ determined the appropriate WACC for the Corporation to be in
the range of 9.5% to 10.5%.
TERMINAL VALUE
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ developed terminal enterprise values at the end of the
forecast period by calculating the present value at the selected WACC of
terminal period unlevered after-tax free cash flows growing in perpetuity at
1.5% to 2.5% per annum. In selecting the range of growth rates, BMO ▇▇▇▇▇▇▇
▇▇▇▇▇ took into consideration the outlook for long-term inflation and the growth
prospects of the Corporation beyond the terminal year. The terminal year
EV/EBITDA multiples implied by the 1.5% to 2.5% unlevered after-tax free cash
flow growth rates into perpetuity, assuming discount rates of 9.5% to 10.5%,
were considered by BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ to be reasonable based on its review of
trading and transaction multiples.
PRESENT VALUE OF TAX LOSSES
The tax losses were modeled separately through an integrated financial model of
the Corporation (including Microcell) to derive the appropriate uses of the tax
losses as suggested by Management. The cash savings were discounted at an
effective cost of equity of 12.3% to
20
yield a value of $4.20 per RWCI Restricted Voting Share. This amount was added
to the Corporation's DCF analysis results to arrive at a full DCF value.
SUMMARY OF DCF APPROACH
The following is a summary of the value of the RWCI Restricted Voting Shares
resulting from the DCF analysis:
VALUE RANGE
--------------------
Low High
-------- --------
ASSUMPTIONS
WACC .............................................. 10.5% 9.5%
DCF APPROACH ($ millions, except per share amounts)
Net present value
Unlevered after-tax free cash flows ............ $ 2,606 $ 2,673
Terminal value ................................. 7,060 8,346
-------- --------
Enterprise value .................................. 9,666 11,019
Less: Net obligations value(1) .................... (3,396) (3,396)
-------- --------
EN BLOC EQUITY VALUE .............................. $ 6,269 $ 7,623
EN BLOC EQUITY VALUE PER SHARE(2) ................. $ 42.98 $ 52.26
PRESENT VALUE OF TAX LOSSES ....................... 4.20 4.20
-------- --------
TOTAL EN BLOC EQUITY VALUE PER SHARE .............. $ 47.18 $ 56.46
======== ========
------------
1. Net obligations include net debt and proceeds from option issuance.
2. Based on 146 million fully diluted shares outstanding.
SENSITIVITY ANALYSIS
The DCF analysis is sensitive to several of the assumptions used. BMO ▇▇▇▇▇▇▇
▇▇▇▇▇ performed sensitivity analyses on certain key assumptions, representing
step changes to all forecast years for each assumption as outlined below:
IMPACT ON
VARIABLE SENSITIVITY SHARE VALUE
-------- ----------- -----------
Market penetration.............................. + 2.5% $5.21
-2.5% (5.21)
Market share of net adds........................ + 4.0% 3.18
-4.0% (3.18)
Monthly churn................................... + 0.2% (1.80)
-0.2% 1.80
Monthly ARPU.................................... + $1.00 4.56
-$1.00 (4.56)
Capex........................................... + 10% (3.60)
-10% 3.60
21
COMPARABLE TRADING APPROACH
BMO NB also considered the comparable trading approach. BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇
limited its list to North American companies on the basis that European and
Asian companies, while engaged in similar businesses, operate under regulatory
regimes very different from the Corporation's and in local markets that are much
further advanced than the Canadian market. With few comparable publicly traded
companies in the North American wireless industry, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ has placed
limited amount of emphasis on this approach. For the purposes of its analysis,
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ identified and reviewed 20 public companies in the wireless
industry. From those BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ considered the five specific companies
listed below, which were deemed to be the most comparable to the Corporation.
The market capitalizations for Microcell and AT&T Wireless were adjusted to
reflect trading values prior to announcement of their initial takeover bids.
EBITDA YOY
EV/EBITDA GROWTH RATES EBITDA MARGINS
MARKET -------------------- -------------------- --------------------
($ million) CAPITALIZATION(1) 2005E(3) 2006E(3) 2004E(3) 2005E(3) 2004E(3) 2005E(3)
-------------------------- ----------------- -------- -------- -------- -------- -------- --------
CANADIAN COMPARABLES (C$)
Microcell (Pre-Bid)(2)........ $ 854 5.1 3.6 35% 69% 18% 25%
Telus......................... $ 10,759 5.4 5.3 8 6 41 41
US COMPARABLES (US$)
Nextel........................ $ 30,730 6.7 5.9 17% 15% 40% 41%
AT&T Wireless (Pre-Bid)(4).... 32,519 7.9 8.0 (5) 10 25 28
Western Wireless.............. 2,876 6.9 6.1 44 13 33 35
US Cellular................... 3,622 5.9 5.2 4 17 24 26
HIGH............................. 7.9 8.0 44% 69% 41% 41%
LOW.............................. 5.1 3.6 (5) 6 18 25
------------
1. As of November 8, 2004.
2. Microcell share price is as of May 30, 2004 prior to Telus's takeover bid.
3. Estimates for calendar years sourced from recent research reports and IBES.
4. AT&T Wireless was acquired by Cingular Wireless on October 26, 2004. The
original bid was announced on February 17, 2004.
While none of the companies reviewed was considered directly comparable to the
Corporation, based on the comparable company trading analysis summarized above,
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ selected what it considered to be reasonably representative
public trading multiples, before making any adjustment to reflect an "en bloc"
valuation of the RWCI Restricted Voting Shares. BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ considered
EV/EBITDA for 2005E and 2006E to be the most appropriate trading multiples to
evaluate the Corporation.
In selecting the multiple ranges shown below, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ gave
consideration to several factors, including differences in business mix, growth,
profitability and size between the Corporation and the companies reviewed.
SELECTED MULTIPLE RANGE
--------------------------
Low High
----- ------
EV / EBITDA
Fiscal 2005E........................... 7.0 8.0
Fiscal 2006E........................... 6.0 7.0
22
The following is a summary of the value of the RWCI Restricted Voting Shares
resulting from the selection of trading valuation multiples above, before making
any adjustment to reflect the "en bloc" valuation of the RWCI Restricted Voting
Shares:
SELECTED
MULTIPLE RANGE VALUE RANGE
---------------- --------------------
($ millions) BENCHMARK Low High Low High
--------------------------- --------- ------ ------ ------- ---------
EV / EBITDA
Fiscal 2005E(1)............. $ 1,225 7.00 8.00 $ 8,572 $ 9,797
Fiscal 2006E(1)............. 1,438 6.00 7.00 8,627 10,065
------- -------
Enterprise trading value.... Average 8,600 9,931
Less: net obligations(1).... (3,539) (3,539)
------- -------
Equity trading value........ 5,060 6,392
----------
1. Adjusted for one time costs of Microcell acquisition.
Market trading prices generally do not reflect "en bloc" values. To adjust for
en bloc value, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ considered and reviewed take-over premiums paid
in precedent Canadian public company transactions. For the purposes of this
analysis, premium is defined as the amount (expressed in percentage terms) by
which the price paid per share under the precedent transaction exceeded the
closing price of the shares one week and one month immediately prior to the
announcement of the transaction. BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ identified 69 such
transactions announced since January 1, 2000. Of those transactions BMO ▇▇▇▇▇▇▇
▇▇▇▇▇ further identified 8 transactions since January 1, 2002, which had no
synergy component to them in order to find premiums most applicable to an "en
bloc" value of RWCI Restricted Voting Shares (please refer to "Benefits to RCI
of Acquiring RWCI Restricted Voting Shares Held by Minority Shareholders" for
details). The mean premiums were as follows:
TRANSACTION PREMIUMS WITH NO ANTICIPATED SYNERGIES
MEAN
------
1 week premium.................................................... 21%
1 month premium................................................... 20%
Based on the take-over premiums paid in precedent Canadian public company
transactions, as described above, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ selected and applied a
premium of 20% to the equity trading value of the RWCI Restricted Voting Shares
to determine an "en bloc" equity value per share.
VALUE RANGE
-------------------
($ millions, except per share data) Low High
----------------------------------- ------- -------
Equity trading value average............................... $ 5,060 $ 6,392
Take-over premium.......................................... 20% 20%
EN BLOC EQUITY VALUE....................................... $ 6,072 $ 7,670
EN BLOC EQUITY VALUE PER SHARE(1).......................... $ 41.63 $ 52.58
======= =======
------------
1. Based on 146 million fully diluted shares outstanding.
23
PRECEDENT TRANSACTION APPROACH
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ also considered the precedent transaction approach and
reviewed precedent acquisition transactions involving companies in the wireless
industry which were comparable and for which there was sufficient public
information to derive multiples. Only recent transactions with purchase prices
greater than $500 million principally in North America and Europe were reviewed.
Given differences in the business size and mix, market dynamics and economic
environment at the time of the transaction, growth prospects and other factors
inherent in the comparable precedent transactions identified, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇
did not consider any specific precedent transaction to be directly comparable to
the Corporation and, as a consequence, placed less emphasis on this methodology
than on either the DCF approach or the comparable trading approach in
determining the value of RWCI Restricted Voting Shares.
While BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ did not consider any specific transaction to be directly
comparable to the acquisition of the Corporation, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ identified
three precedent transactions to be considered:
1. Cingular's purchase of AT&T Wireless
2. The Corporation's purchase of Microcell Inc.
3. ▇▇▇▇ Canada's purchase of BCE Mobile Communications Inc.
CORE PRECEDENT TRANSACTIONS - ADJUSTING FOR SYNERGIES AND TAX LOSS ASSET VALUE
--------------------------------------------------------------------------------------------------------------------------
PREMIUM TO
UNAFFECTED SHARE PRICE EV / EBITDA
COMPLETION/ OFFER -------------------------------- -------------------------
TERMINATION DATE ACQUIROR TARGET PRICE 1 - DAY 1 - WEEK 4 - WEEKS LTM FY + 1 FY + 2
---------------- ---------------------------- ------ ------- -------- --------- ----- ------ ------
11-Nov-04 ▇▇▇▇▇▇ Wireless $35.00 66.7% 37.3% 47.7% 14.0 10.7 6.3
Microcell
26-Oct-04 Cingular $15.00 75.4 80.9 109.5 6.6 6.6 6.0
AT&T Wireless
25-Oct-99 BCE $58.75 19.9 29.4 30.6 16.0 14.7 12.0
BCE Mobile Communications
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ makes the following observations:
1. The AT&T Wireless transaction was the most comparable transaction
given that both AT&T Wireless and the Corporation are national
operators and the transaction occurred recently in 2004. However, the
transaction was highly synergistic and the premium paid on the
unaffected share price reflected these synergies (announced annual
synergies of approximately $1 billion in 2006 and in excess of $2
billion beginning in 2007).
2. The Corporation's recently completed acquisition of Microcell was also
considered a relevant transaction. All figures used in determining the
multiples were based on information available in public announcements
and research analysts' reports. In order to make the transaction
comparable we adjusted the transaction multiple to recognize the
present value of the tax loss assets as estimated by several research
analysts.
3. The BCE / BCE Mobile going private transaction was considered only
from the point of view of the premium paid to the unaffected share
price due to the dated nature of the transaction (October 1999).
24
In arriving at our range for the precedent transaction approach, BMO ▇▇▇▇▇▇▇
▇▇▇▇▇ primarily relied on its professional judgment and experience analyzing the
wireless industry. BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ applied the Enterprise Value to the two
year forward fiscal EBITDA multiple, adjusted for the announced synergies and
premia paid, to the Management Forecast for fiscal year 2006 EBITDA.
Based on the above, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ believes that for the purposes of the
precedent transaction approach the appropriate EV to fiscal year 2006 EBITDA
multiple would be in the range of 6.0x to 7.0x.
SELECTED MULTIPLE RANGE
-----------------------
Low High
----- ------
EV / EBITDA
Fiscal 2006E............................ 6.0 7.0
The following is a summary of the value of the RWCI Restricted Voting Shares
resulting from the selection of precedent transaction valuation multiples above:
SELECTED
MULTIPLE RANGE VALUE RANGE
--------------- -------------------
($ millions) BENCHMARK Low High Low High
------------------------------- --------- ----- ------ ------- --------
EV / EBITDA
Fiscal 2006E(1)(2)............. $ 1,438 6.00 7.00 $ 9,240 $ 10,678
Less: Net Obligations(2)....... (3,539) (3,539)
------- --------
5,701 7,138
Equity trading value per share..... $ 39.08 $ 48.90
------------
1. Includes $4.20 per share of NOLs.
2. Adjusted for one-time costs of Microcell acquisition
REDUNDANT ASSETS
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ considered in arriving at its opinion as to the value of the
RWCI Restricted Voting Shares whether there were any redundant assets of the
Corporation that would add value over and above the values derived from the
three approaches considered. With regard to the Rogers Campus of buildings that
the Corporation owns, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ reviewed their treatment in the
historical financials and forecasts of Management and were satisfied that their
value was already imbedded in the values derived by either of the two comparable
multiple approaches and the DCF approach. As described above, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇
valued separately the available tax losses of both the Corporation and
Microcell.
BENEFITS TO RCI OF ACQUIRING THE RWCI RESTRICTED VOTING SHARES HELD BY MINORITY
SHAREHOLDERS
In arriving at our opinion of the value of the RWCI Restricted Voting Shares,
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ also reviewed and considered whether any material value would
accrue to a purchaser of
25
100% of the Corporation's common shares. Management indicated that it did not
foresee any net positive or negative synergy benefits from combining the
Corporation with RCI from a financial point of view as the inter-company
transfer pricing of shared expenses such as call centres, back-office
management, accounting, legal, and investor relations, was generally reflective
of arm's-length pricing. BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ concluded that no material additional
synergy value should be assigned to the RWCI Restricted Voting Shares.
VALUATION SUMMARY
The following is a summary of the range of fair market values of the RWCI
Restricted Voting Shares resulting from the DCF approach, the comparable trading
approach, and the precedent transaction approach:
EQUITY VALUE PER
RWCI SHARE
-----------------------
Low High
--------- ---------
Discounted cash flow approach............................. $ 47.18 $ 56.46
Comparable trading approach (2005E & 2006E average)....... $ 41.63 $ 52.58
Precedent transaction approach............................ $ 39.08 $ 48.90
In arriving at its opinion as to the fair market value of the RWCI Restricted
Voting Shares, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ attributed proportionately more weight to the
DCF approach than to the comparable trading approach and the least amount of
weight to the precedent transaction approach for the reasons expressed above.
VALUATION CONCLUSION
Based upon and subject to the foregoing, including such other matters as we
considered relevant, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ is of the opinion that, as of November
22, 2004, the fair market value of the RWCI Restricted Voting Shares is in the
range of $46.00 to $54.00 per share.
FAIRNESS OPINION
In considering the fairness, from a financial point of view, of the
consideration offered under the Transaction to the Minority Shareholders, BMO
▇▇▇▇▇▇▇ ▇▇▇▇▇ reviewed, considered and relied upon or carried out, among other
things, the following:
o a comparison of the value of the consideration offered under the
Transaction to the fair market value range of the RWCI Restricted
Voting Shares determined in the Formal Valuation; and
o such other information, investigations and analyses considered
necessary or appropriate in the circumstances.
26
VALUE OF THE CONSIDERATION
Pursuant to the Transaction, Minority Shareholders will receive 1.75 RCI
Non-Voting Shares for each RWCI Restricted Voting Share held. The RCI Non-Voting
Shares received by the Minority Shareholders will represent a minority position
in RCI and will not allow the Minority Shareholders to affect control of RCI. As
such, and because based on the analyses undertaken by and information made
available to it, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ has no reason to believe that the market
price of the RCI Non-Voting Shares is not indicative of value, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇
concluded that it was not appropriate to consider methodologies that utilize an
"en bloc" approach, and that an "en bloc" valuation is not required, in
assessing the value of RCI Non-Voting Shares. As noted above, the reference to
"en bloc" valuation herein means a valuation where, in accordance with the
Rules, no downward adjustment is made to reflect the liquidity of the
securities, the effect of the transaction or the fact that the securities do not
form part of a controlling interest. In considering the value of the RCI
Non-Voting Shares being offered, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ has relied upon the market
trading approach. The value range expressed herein in respect of the RCI
Non-Voting Shares constitutes a formal valuation of the RCI Non-Voting Shares in
accordance with the MSPA based upon assumptions specified by the Independent
Committee.
The market trading approach was deemed by BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ to be an appropriate
basis for valuing the consideration offered to the Minority Shareholders under
the Transaction after considering the following factors:
i. Liquidity: The last 90 day trading volume of the RCI Non-Voting Shares
was approximately 63.9 million shares, representing an aggregate
traded value of $1.68 billion;
ii. Market Float: The aggregate value of RCI's publicly traded equity
securities (excluding insiders and holders of greater than 10% of
shares outstanding) is approximately $5.0 billion;
iii. Market Familiarity: The business and affairs of RCI are carefully
scrutinized by market professionals, with more than 15 analysts
providing research in respect of its equity securities;
iv. Size of the Transaction: The maximum number of RCI Non-Voting Shares
to be issued in connection with the Transaction (assuming that all of
the Minority Shareholders tender for the consideration offered,
specifically 1.75 RCI Non-Voting Shares) is 27.0 million (excluding
any options exercised for RWCI Restricted Voting Shares), which
represents approximately 12.5% of the RCI Non-Voting Shares
outstanding after giving effect to such issuance; and
v. Public Disclosure: BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ conducted discussions with RCI
senior management and was advised that there is no material
information regarding RCI, the Corporation and Microcell which has not
been publicly disclosed that would otherwise reasonably be expected to
affect the market price of the RCI Non-Voting Shares
27
vi. Trading Comparables: As RCI has no direct trading comparables, BMO
▇▇▇▇▇▇▇ ▇▇▇▇▇ reviewed publicly traded comparable companies for each
of RCI's three principal businesses - cable, wireless and media, and
concluded that RCI's current trading value was not inconsistent with
the implied aggregate value from the trading comparables.
LIQUIDITY AND PRICE ANALYSIS OF RCI NON-VOTING SHARES
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ considered the trading history of RCI Non-Voting Shares on the
Toronto Stock Exchange ("TSX") over the last twelve months and 90 days. The
volumes and trade-weighted average prices are summarized below:
Days to
Trade Shares
to be Issued
Average Trade Weighted High Low Pursuant to
Period Ending November 19, 2004 Volume on TSX Average Price Price Price Transaction(1)
------------------------------- ------------- -------------- --------- --------- --------------
1 Day........................... 922,289 $ 29.11 $ 29.60 $ 28.65 29
10 Days......................... 1,606,387 $ 29.01 $ 30.37 $ 27.95 17
20 Days......................... 1,123,374 $ 28.68 $ 30.37 $ 27.01 24
30 Days......................... 953,578 $ 28.33 $ 30.37 $ 26.53 28
60 Days......................... 900,974 $ 27.60 $ 30.37 $ 22.82 30
90 Days......................... 725,941 $ 26.94 $ 30.37 $ 22.82 37
----------
1. Based on 27.0 million shares owned by Minority Shareholders and the average
volume for the period.
For the purposes of this Fairness Opinion, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ concluded that it
was most appropriate to consider a range of trading levels for the RCI
Non-Voting Shares as observed from recent trading activity as presented below:
RCI Non-Voting Shares Implied
Trade Weighted Value of
Period Ending November 19, 2004 Share Price(1) Consideration(2)
------------------------------- --------------------- ----------------
1 Day.................................... $ 29.11 $ 50.94
10 Days.................................. $ 29.01 $ 50.76
20 Days.................................. $ 28.68 $ 50.19
30 Days.................................. $ 28.33 $ 49.58
------------
1. Highest price traded in last 10 trading days was $30.37.
2. Based on 1.75 RCI Non-Voting Shares per RWCI Restricted Voting Share.
Based on the market trading analysis, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ determined a value range
for RCI Non-Voting Shares of $28.00 - $30.00 per RCI Non-Voting Share.
COMPARISON OF THE CONSIDERATION OFFERED TO THE FORMAL VALUATION
Under the terms of the Transaction, the Minority Shareholders would receive
$49.00 - $52.50 per RWCI Restricted Voting Share, which is within the range of
fair market value of the
28
RWCI Restricted Voting Share as of November 22, 2004, as determined by BMO
▇▇▇▇▇▇▇ ▇▇▇▇▇.
FAIRNESS OPINION CONCLUSION
Based upon and subject to the foregoing and such other matters as we considered
relevant, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ is of the opinion that, as of November 22, 2004, the
consideration offered under the Transaction is fair, from a financial point of
view, to the Minority Shareholders.
Yours very truly,
/s/ BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ Inc.
-----------------------------------
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ Inc.
29