Shoppers frequent a Cogeco location in LimeRidge Mall in Hamilton on Sept. 30, 2020.Glenn Lowson/The Globe and Mail
Ever run across a bickering, unhappy couple who both go on to thrive after they split? That’s Rogers Communications Inc. and Cogeco Inc.
Three years after Rogers RCI-B-T abandoned a hostile bid for its Montreal-based rival’s Canadian operations, the Toronto-based telecom company sold its entire stake in both Cogeco and subsidiary Cogeco Communications Inc CCA-T. to the Caisse de dépôt et placement du Québec (CDPQ) for $829-million.
Both Rogers and Cogeco can legitimately claim to be better off for breaking up. However, the real winners in this split are likely to be telecom customers who have long complained about their monthly bills.
For those missing the family intrigue behind this telecom deal, here’s the background. Rogers founder Ted Rogers began building a Cogeco stake more than 20 years ago, in hopes of eventually persuading the controlling shareholder, the Audet clan, to sell. The two families stopped exchanging Christmas cards in 2020 after a bitter takeover battle.
Late Monday, when Rogers cut ties with Cogeco, both companies put a positive spin on the deal. Rogers trumpeted cutting its $44-billion debt load. Cogeco highlighted a strengthened relationship with the deep-pocketed CDPQ and elimination of uncertainty around Rogers’s plans that weighed heavy on its stock price.
Why is this corporate divorce good news for consumers? It clears the way for an escalation in price wars that Rogers launched in the fall.
Rogers, the country’s largest wireless provider, is offering its cellphone clients in Quebec an aggressively-priced fixed wireless access (FWA) bundle. This technology offers 5G internet and cable services for homes and businesses at speeds that match fibre networks.
In Quebec, Rogers sells its basic FWA service for as little as $35 a month, compared with $40 for a similar package from Bell Canada parent BCE Inc. BCE-T, according to a report from analyst Jerome Dubreuil at Desjardins Securities.
In the U.S. market, Mr. Dubreuil said telecom companies offering FWA services are having a “significant negative impact” on cable company valuations. He said Cogeco, predominately a cable business, is more vulnerable to losing customers to rivals offering FWA than any other domestic telecom platform.
“Interestingly, Rogers’s decision to sell its Cogeco block coincides with the recent acceleration of its FWA rollout in Quebec,” Mr. Dubreuil said.
We’re in the early days of FWA introduction in Canada. Yet if Rogers is intent on escalating a market share battle that’s going to cut into profits at Cogeco’s main business, it makes sense for the company to sell a long-held stake in its rival. It’s worth noting that Cogeco plans to roll out its own wireless network.
It also makes sense for Rogers to eliminate debts taken on to acquire Shaw Communications Inc. earlier this year for $20-billion.
Last quarter, Rogers’s debt amounted to 4.9 times its earnings before interest, taxes, depreciation and amortization (EBITDA). By the end of next year, analysts say selling Cogeco stock and another $1-billion of assets, plus strong results from wireless and cable divisions, will bring debt down to a more manageable 4.1 times EBITDA.
While Rogers is selling, both the CDPQ and public investors saw a reason to buy stakes in Cogeco Communications, once Rogers agreed to exit at a 10-per-cent discount to where the stocks were trading on Monday.
The Montreal-based asset manager ended up acquiring a 16-per-cent holding in Cogeco Communications. In 2017, CDPQ also took a US$315-million equity stake in Cogeco’s U.S. cable business to backstop a US$1.4-billion acquisition. Cogeco now represents one of CDPQ’s largest positions in a Quebec-based company.
As part of Monday’s transaction, CPDQ sold 5.3 million Cogeco Communications shares at the same 10-per-cent discount to a group of investment banks led by CIBC Capital Markets and UBS Securities Canada. The dealers then sold the stock to investors. The $272-million share sale increased Cogeco Communications’s public float from 40 per cent of its outstanding shares to 55 per cent.
While Rogers, Cogeco, the CDPQ and public investors can all claim victory the day of a deal, the real winner of this transaction is going to be the platform that lures clients to the next generation of wireless and cable networks. If those customers are paying less for telecom services, then the consumer is also a winner.
Andrew Willis