Rogers targets BCE with Videotron deal
Philip DeMont
The Ottawa Citizen
TORONTO -- Rogers Communications Inc. snapped up Le Groupe Videotron Ltee., Quebec's biggest cable carrier, in a $6-billion deal yesterday that will create North America's seventh-largest cable company and a $25-billion competitor for archrival BCE Inc.
The all-stock transaction should make Rogers Communications the largest cable carrier in Ontario and Quebec and push the Toronto-based firm into the fore of telephone-over-Internet technology with which Videotron has been experimenting.
Yesterday's deal also strengthens Rogers Communications in its fight against Montreal-based BCE, which owns Bell Canada and new media arm BCE Emergis Inc.
"My friend (BCE chairman) Jean Monty, he's highly co-ordinated. We're highly fractured (in the cable industry). Guess who would win that kind of battle?" said Rogers president and chief executive Ted Rogers.
Rogers Communications plans to issue 120 million new shares and trade them at a ratio of 0.925 of a Class B non-voting share for each Videotron share.
That means Rogers Communications will fork over between $5.3 billion and $6 billion in stock for Videotron when the deal closes in April.
Using a 20-day price average of $28.60 a share for Videotron stock, Rogers paid an approximate premium of 43 per cent for the company.
Not included in the deal are Videotron's holdings in TVA Group Inc., a Quebec television station which the Chagnon family, Videotron's owners, was not interested in selling, according to Mr. Rogers.
January's $163.5-billion U.S. marriage between America Online Inc. and Time Warner Inc. was a driving force in the Rogers-Videotron deal, Mr. Rogers said.
That agreement showed that the convergence of the telephone and cable television worlds is already a reality, Mr. Rogers said.
This latest agreement still needs the approval of Videotron's shareholders and of the Canadian Radio-television and Telecommunications Commission.
But don't look for a new Rogers Communications-Videotron to slash jobs and shut offices, Mr. Rogers said, because neither company has operations that intrude into the other's territory.
Instead, the new company, which will have 3.7 million cable television customers, is selling $3 billion in "non-core" assets, including Rogers Communications' $2 billion worth of AT&T Canada Inc. stock.
In terms of strengths, Rogers Communications has a strong wireless communications arm, through its Rogers AT&T Wireless subsidiary, key television assets and more than 200,000 high-speed Internet customers.
Videotron, which has been testing IP telephony and pushing its multi-media products, saw the assets of the two companies dovetailing nicely, said Claude Chagnon, Videotron's president and chief executive who will become vice-chairman of the new company.
"We were not for sale," he said. "But this merger makes so much sense. It was an offer we could not refuse."
In January, 45-year-old Claude took over the reigns of Videotron from his father and founder, Andre .
The price of shares in Rogers Communications fell by $4.30 at the end of yesterday's session on the Toronto Stock Exchange to close at $43.90. Videotron's share price gained $0.50, to finish the day at $41.
In the case of Rogers Communications-Videotron, observers speculated that investors were unhappy with the reduced short-term per-share earnings that would result from Rogers Communications issuing so much new stock.
To deal with potentially disgruntled investors, Mr. Rogers said his company is willing to buy back as much as $1 billion of its outstanding stock, a move designed to reduce the firm's public share float and boost its per-share yields.
If stock buyers were lukewarm to the marriage, securities analysts were not.
"Congratulations on a spectacular deal," said Paul Pew, an analyst with Griffiths McBurney & Partners, in a conference call with Rogers Communications and Videotron officials.
"The deal allows Rogers Communications to compete with Bell across its entire scope (of products and geography)," said added Iain Grant, managing director of the Yankee Group in Canada, a Brockville technology consultancy. |
