Historical Notes
CallNet Enterprises Inc.
Sprint Canada Inc.
Fonorola Inc.

Service areas: All Canada
These companies are in competition with each other
and with other telephone companies
to provide long-distance telephone services.

1997 November 17

Fonorola Opens Halifax Office

On this day Fonorola announced the opening of its Nova Scotia office at Purdy's Wharf, 1969 Upper Water Street, Suite 1606, Tower II, Halifax.  Fonorola (the company prefers "fONOROLA") is a Canadian carrier of telecommunications services, with its corporate head office at 500 Rene-Levesque Boulevard West, Suite 305, Montreal.  Since its inception in 1989, Fonorola has rapidly established itself as an innovative and dynamic presence in the telecommunications market in Canada and the USA.  Fonorola has undertaken the construction of a total of 12,000 kilometres of fibre-optic network in Canada and the U.S. of which 5,000 kilometres are already in place.  The network, when completed, will link Vancouver to Halifax in Canada with additional links to Seattle, Minneapolis, Chicago, Detroit, Buffalo and New York City.  The fibre-optic transmission system utilizes Nortel's OC-192 SONET technology making it the largest capacity transmission system commercially available in the world today.  It is designed in self-healing rings with 50 millisecond restoration capability.  When completed, this new transcontinental network will provide the shortest direct fibre-optic route from North America to Europe and Asia.  Fonorola has negotiated extensive right-of-way agreements with both Canadian National Railway Company and Canadian Pacific Railway Company.  In August 1997, Fonorola entered into licensing agreements with Canadian Pacific Railway to develop an additional 3,418 kilometres of fibre-optic network, which will link the cities of Calgary, Regina, Winnipeg, Minneapolis-St. Paul, Madison, Milwaukee, Chicago, South Bend, Detroit and Sarnia.  This system will interconnect with Fonorola 's existing 7,821 kilometres of owned or under construction fibre network.  This project will be completed in 1998 and will provide coast-to-coast transmission capacity to approximately 50 million people in Canada and the United States.  The entire network will use an OC-192 transmission system providing users with low-cost high performance bandwidth capable of carrying voice, data and video simultaneously.  Fonorola employs over 800 personnel in its switching centres in Montreal (head office), Toronto, Calgary, Vancouver, Buffalo and Seattle, and in its other offices located in Quebec City, Ottawa, London, Chatham, Edmonton, Winnipeg and Halifax.  Fonorola Corporation, the Company's wholly-owned and licensed United States subsidiary, is based in Tarrytown, New York.  Fonorola Corporation is the first Canadian-controlled company licensed by the Federal Communications Commission (FCC) to operate as a facilities-based carrier and an international reseller of switched voice services in the US.
[Fonorola press release]

1998 March 23

Fonorola to Change Name

On this day, Mr. Jan Peeters, President and CEO of Fonorola, announced that the company would be changing its name within the next few months.  "This decision was made necessary to avoid lengthy proceedings in United States courts in a dispute with Motorola, an American multinational company," declared Mr. Peeters.  The management of Fonorola feels that it is essential to have one name worldwide.  Because of the possibility of losing the right to operate under the name Fonorola in the United States, Fonorola decided to change its name everywhere it does business.
[Fonorola press release]

1998 April 15

Sharp Rise in Price
of Fonorola Shares

On Wednesday, 15 April 1998, about 4,800,000 Fonorola shares were traded on the TSE, closing at $66.40, up $22.20 from the closing price the previous day.  The cause of this sharp rise was the release of news that CallNet Enterprises Incorporated intends to try to buy Fonorola, by offering a good price for each and every Fonorola share.  CallNet's offer price is about 44% above the average price of Fonorola shares over the last 20 days before the announcement.  Fonorola shares are traded on the Toronto Stock Exchange under the ticker symbol FON.

1998 April 23, Thursday

Fonorola Offers Lower-Cost
Long Distance Service
in Nova Scotia

"Fonorola will slash 15% off North American long-distance and toll-free rates offered by Sprint Canada to their residential, home office, small office, or commercial customers.  That's right, 15% off.  It's not one-upmanship, it's just that anything they can do, we can do better... Offer valid until June 30, 1998," reads a 27cm × 49cm display advertisement in the Halifax Chronicle-Herald, 23 April 1998.  The rate being offered is 12.5¢ per minute for calls from Nova Scotia to anywhere in Canada; this rate applies 24 hours a day, 7 days a week, with no minimum spending requirements or activation fees.
[The Halifax Chronicle-Herald, 23 April 1998; the website http://www.fonoroa.com/ and other sources.]

1998 April 24, Friday

Strange Masks and Ritual Threats

Within the last 52 weeks the price of Fonorola shares has ranged from a low of $18.40 to a high of $69.75 per share.  On Friday, 24 April 1998, Fonorola shares traded between a high of $68.35 and a low of $61.50, closing the day at $62.35.  On Saturday, 25 April 1998, The Globe and Mail commented: "Hostile takeover battles are known for their kabuki theatre-like qualities, with predator and prey donning strange masks and croaking ritual threats.  But investors seem genuinely worried that CallNet may pull the plug on its $1,600,000,000 uninvited bid for long-distance phone rival Fonorola.  CallNet says it's upset at Fonorola's deal to sell fibre-optic lines to Bell Canada, arguing that it harms the value of the company.  Trading volume in Fonorola topped two million shares on Thursday and exceeded one million yesterday.  The stock slid $6.00 for the week."
[The Globe and Mail, 25 April 1998]

1998 April 27, Monday

CallNet Offers $1,600,000,000 for Fonorola

CallNet Enterprises Incorporated formally launched its $1,600,000,000 unsolicited bid for Fonorola Incorporated, with the mailing this day of a letter, including the 58-page offering circular, to all owners of Fonorola shares.  Fonorola has 26,600,000 shares outstanding.  CallNet is offering $60 cash for each of Fonorola share, or 2.4 non-voting class B CallNet shares for each Fonorola share, for all shares tendered.  Each Fonorola shareholder has the option to choose the cash or the CallNet shares.  The cash portion of the transaction is estimated to be worth $1,120,000,000, or 70% of the value of the deal.  The remaining 30% will come from the issue of up to 19,160,000 non-voting CallNet shares.

The offer is being mailed today even though Juri Koor, the head of CallNet, said last week he was upset that Fonorola has plans to sell its fibre optic network between Toronto and western Canada.  Fonorola says it agreed to sell the network to Bell Canada for $179,000,000 well before CallNet made its takeover offer public.  Fonorola responded to CallNet's bid by hiring New York investment banker Goldman Sachs as advisor, and by running large ads offering to undercut Sprint rates.

CallNet is based in Toronto, and owns Sprint Canada Incorporated.  Sprint is the country's second-largest alternative (non-Bell) long-distance telephone carrier.  Fonorola, based in Montreal, ranks third.  Sprint Canada has about 1,300,000 residential and business customers and 2000 employees.  Fonorola has about 800 employees.  The 1997 revenues of Sprint were $921,000,000, and of Fonorola $400,000,000.

Sprint Canada has targeted both residential and small to medium-sized businesses, and has captured 11% of Canada's long-distance market, now worth $7,500,000,000 annually.  Ten year old Fonorola has pursued large corporate customers and smaller resellers of long-distance services.  CallNet expects that the acquisition of Fonorola will add five percentage points to Sprint Canada's market share.  Based on 1997 results, that would have given Sprint Canada 16% of the market, worth $1,300,000,000 annually.  The acquisition will also expand Sprint Canada's network, giving it access to Fonorola's lines to the United States, and to Fonorola's new international switching centre in New York.

Fonorola's Board of Directors has ten days from today to make a recommendation to its shareholders, giving them its opinion of whether they should sell or hold their shares.  This recommendation is only an opinion, and each shareholder makes his/her own decision.  CallNet's offer expires at 11:59pm on 19 May.  It is conditional upon the tender of two-thirds of Fonorola's shares and the removal of Fonorola's shareholder rights plan, as well as regulatory approvals.  Fonorola has postponed its annual shareholders' meeting, originally scheduled for 29 April, for one week, to 6 May, to gain time to deal with the unsolicited bid.

[The Globe and Mail, the Halifax Daily News, and the Halifax Chronicle-Herald, all of 28 April 1998]

1998 May 19

CallNet Extends Offer for Fonorola

Until Midnight, 29 May 1998

CallNet Enterprises Incorporated has extended the deadline of its $1,650,000,000 takeover bid for Fonorola Incorporated, giving shareholders of that Montreal-based long-distance company until midnight on Friday, May 29, to tender their shares.  The offer had previously been scheduled to expire atmidnight on May 19, 1998.  Following is a letter that Juri Koor, chairman, chief executive officer and president of CallNet, sent this day to Fonorola shareholders with CallNet's notice of extension:

Dear Fonorola Shareholder: As you know, on April 15, 1998, CallNet Enterprises announced its intention to make a full and fair offer to acquire all of the outstanding common and Class A Non-Voting shares of Fonorola Inc.  Our offer provides you with the option of receiving either C$60.00 in cash or 2.4 CallNet Class B nonvoting shares for each Fonorola share, subject to pro-ration.  On the day of our announcement, our offer represented a 44.3% premium to the 20-day weighted average trading price of Fonorola shares.  As of Friday, May 15, 1998 assuming full pro-ration, our offer represented a full 73% premium to the Fonorola equity offering completed only seven weeks ago at a price of C$35.50.  There is a unique fit between our companies, a fit that we believe cannot be replicated by any other combination.  Together, CallNet and Fonorola will create a formidable North American telecommunications company with enhanced growth opportunities, increased scale and scope, and significant operating and capital synergies.  Our combined company will be financially stronger, with revenue expected to exceed C$2 billion in 1999, improved cash flow per share, and more than C$500 million dollars of cash on hand to finance operations and pursue new corporate initiatives.  Investor liquidity will be substantially increased and CallNet's debt-to-equity ratio will remain at approximately the same, prudent level of two to one.  Since the offer was mailed to you on April 27, 1998, CallNet has made substantial progress in satisfying the conditions in its offer.  The regulatory process is advancing smoothly.  We have received a special temporary authority from the Federal Communications Commission and the Federal Trade Commission has concluded that the Hart-Scott-Rodino Act is not applicable.  It is not anticipated that any other regulatory approvals will delay the completion of our offer.  However, the continued existence of Fonorola's poison pill seriously impedes CallNet's ability to complete its full and fair offer to the Fonorola shareholders.  The board of directors of Fonorola has the authority to remove the poison pill, which would allow shareholders to decide for themselves to accept our offer.  We have stated on numerous occasions our willingness to discuss a negotiated transaction with Fonorola, but have not received any response which would allow discussions to be initiated on acceptable terms.  It is our view that you, the Fonorola shareholder, should have the opportunity to accept our offer on a timely basis.  Our offer will now expire on May 29, 1998, which is 45 days from the day we informed Fonorola's board of our proposed offer.  Given the competitive nature of the telecommunications industry, we believe that significant erosion of value will occur if this process if further delayed or extended.  We are also concerned that corporate actions taken by Fonorola may also erode value.  We are hopeful that Fonorola's board moves swiftly to conclude this process by waiving its poison pill.  You can communicate your position to your board of directors directly by tendering your shares into the offer.  Should the board not see fit to do so, we are prepared to petition the appropriate securities commissions.  In the absence of a prompt board waiver or regulatory relief, CallNet reserves the right to re-evaluate its offer.  We urge you to read the enclosed material carefully and to tender your shares to our full and fair offer.  A timely completion of this transaction is critical to maintaining the focus of Fonorola's employees and the confidence of its customers, thus ensuring the highest value for Fonorola's shareholders.  If you have questions about the materials please contact Innisfree M&A Incorporated, our information agent, toll-free at 1-888-750-5834.  Sincerely, Juri Koor, Chairman, Chief Executive Officer and President.

CallNet Enterprises Inc. is a rapidly growing publicly owned Canadian company that creates and enhances value by developing opportunities in the telecommunications industry.  CallNet owns 100 per cent of Sprint Canada Inc., and an 11% interest in Microcell Telecommunications Inc. With headquarters in Toronto, Sprint Canada operates 18 offices and employs more than 2,000 Canadians across the country.  CallNet, and its wholly-owned subsidiary, Sprint Canada Inc., is the largest alternative long distance competitor to the Stentor group.  Over the next two years, CallNet expects to become a full service telecommunications company offering a wide range of products, including long distance, local, data, Internet and mobile services.  At the recent CallNet annual meeting, Juri Koor said: "Last year, we achieved an 11% share of the annual C$8,600,000,000 long-distance and data services market.  In two years time, CallNet will compete in a Canadian telecom market worth C$27,000,000,000 annually, which is three times the size of our current addressable market."

Veto Power

In another development, Investors Group Incorporated has emerged as a pivotal player in determining the outcome of CallNet's bid.  Although the bid had been set to expire at midnight last night, its fate was likely determined last Friday in Winnipeg during meetings between CallNet boss Juri Koor and Investors Group managers.  Investors Group, a Winnipeg-based mutual fund giant, is one of three institutional investors that, combined, own enough of Fonorola's stock to block CallNet's proposed takeover.  Two-thirds of Fonorola's shares must be tendered for Toronto-based CallNet to win.  Slightly more than one-third – 34% – is held by the three major shareholders: London-based RIT Capital Partners PLC, a unit controlled by Lord Jacob Rothschild of Europe's famous banking family; New York-based banking giant Citicorp; and Investors Group.  Hence the critical role of Investors Group as a potential spoiler of the biggest deal of Mr. Koor's career.  Since joining CallNet as chairman, president and chief executive officer in 1991, Mr. Koor has orchestrated five other takeovers in addition to the company's alliance with U.S. long-distance giant Sprint Corporation.  CallNet owns Sprint Canada Incorporated, Canada's second-largest alternative long-distance telephone company.  An acquisition of third-ranked Fonorola would vault Sprint Canada ahead of No. 1 AT&T Canada Long Distance Services Company of Halifax.  The combined company would have a 15% share of Canada's long-distance market and, based on 1997 results, annual revenue of about $1,300,000,000.  Fonorola's management told its shareholders this month to reject CallNet's offer to buy shares at $60 each, arguing that a CallNet takeover would compromise Fonorola's expansion in the United States.

Many financial analysts have applauded CallNet's takeover bid and argue there is a strong fit between the two companies, which have built complementary networks and pursued different market segments of the long-distance business.  However, Fonorola shareholders appear to be holding out for a higher offer judging by the closing price of Fonorola's stock yesterday on the Toronto Stock Exchange.  Fonorola's share price was down $1.00 to close at $64.50, but it remains $4.50 above CallNet's offer of $60.00 per share.  By extending CallNet's offer and seeking more time, Mr. Koor may be gambling that he can get enough shareholders to agree with his position, or that Fonorola's share price may fall.  If Fonorola shareholders reject the bid, CallNet could still issue a revised offer, but Mr. Koor has reaffirmed his previous declaration the CallNet's existing offer is fair and he won't offer more.

[Excerpted from The Globe and Mail, 20 May 1998, and CallNet press releases dated 13 and 19 May 1998.]

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