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Independent Cogeco board members reject $10.3B bid from U.S. firm, Rogers

·5 mins read

The board of directors for Cogeco Inc. and Cogeco Communications Inc. say their independent members have rejected a hostile bid from a New York firm that offered $10.3 billion to buy the telecommunications companies. 

The companies said the rejections followed board meetings and discussions with members of the Audet family that controls them.

Gestion Audem Inc., a company controlled by the members of the Audet family, said Wednesday that it does not intend to sell its shares and will not support the unsolicited proposal from Altice USA Inc.

The U.S. cable company made the offer as part of a deal that included a side arrangement that would see Rogers Communications Inc. buy Cogeco's Canadian assets for $4.9 billion.

Gestion Audem holds 69 per cent of Cogeco's voting rights and 82.9 per cent of voting rights at Cogeco Communications. Louis Audet is executive chairman of the companies.

Earlier Wednesday, Altice announced an all-cash cash offer that included $800 million to secure the ownership interests and voting shares held by Louis Audet and his family.

Altice would pay $106.53 per share for the remaining Cogeco Inc. subordinate voting shares and $134.22 per share for each Cogeco Communications Inc. subordinate voting share, a roughly 30 per cent premium on each stock's one-month, volume-weighted average.

Altice also entered into an arrangement to sell Cogeco's Canadian assets to Rogers, the Montreal-based company's largest long-term shareholder, for $4.9 billion cash were the Cogeco bid accepted.

"As Cogeco's largest long-term shareholder with deep roots in Quebec with approximately 3,000 employees, Rogers supports the value being created for all shareholders with the significant premium in the Altice USA offer," spokeswoman Sarah Schmidt said in an email to The Canadian Press.

"We're focused on speaking to shareholders, and trust the Cogeco Board will act in the best interest of all shareholders."

The proposal caused Cogeco Inc.'s shares to shoot up by almost 20 per cent to $94.57 in early afternoon trading, while Cogeco Communications Inc.'s reached $114.37, an increase of more than 15 per cent. Rogers's hit $54.94, an almost five per cent increase.

This is the second time Rogers has been rebuffed in a move to wade into the Quebec market. Rogers tried to acquire Videotron in 2000, but the telecommunications company was eventually purchased by Quebecor.

Were the Cogeco deal to go through, Altice would own the company's U.S. assets, including Atlantic Broadband, a cable operator providing residential and business customers with broadband, video and telephony services in 11 U.S. states.

The proposal would also benefit Rogers as it amalgamates Ontario cable assets, wrote Aravinda Galappatthige and Matthew Lee, analysts with Canaccord Genuity Corp, in a note to investors.

A successful bid could soften the threat of mobile virtual network operators (MVNO), who buy network capacity from wholesalers instead of running their own, they said.

Cogeco long pushed the Canadian Radio-television and Telecommunications Commission for a "hybrid MVNO" model, which would give companies with existing telecom infrastructure access to national wireless networks and the ability to resell the service to their customers.

"The hybrid MVNO model largely relies on the existence of localized wireline companies with the infrastructure and balance sheet to enter the wireless market and subsequently invest in their own networks," they said.

"Naturally, Cogeco was the obvious choice for this, which could have increased the level of wireless competition in Ontario. It can be argued that if a transaction occurs, the threat of hybrid MVNO likely wanes."

Galappatthige and Lee believe the offer made was attractive, but there is room for further negotiation.

They expect Altice and Rogers would be willing to increase their bid and that regulatory approval could be obtained.

Jayme Albert, a spokesperson for Canada's Competition Bureau, said in an email to The Canadian Press that the federal body was aware of the Altice and Cogeco reports, but could not confirm whether it is reviewing the proposed transaction.

Under the Competition Act, mergers of all sizes and in all sectors of the economy are subject to review by the regulator to determine whether they will likely result in a substantial lessening or prevention of competition in any market in Canada, he said.

In general, the bureau must be given advance notice of proposed transactions when the target's assets in Canada or revenues from sales in or from Canada generated from those assets exceed $96 million, and when the combined Canadian assets or revenues of the parties and their respective affiliates in, from or into Canada exceed $400 million, he added.

After hearing Gestion wouldn't support the offer, Altice spokeswoman Lisa Anselmo said in an email to The Canadian Press that the company still believes its offer is "very attractive" and in the best interest of all shareholders. 

"We look forward to hearing from the board," she added.

Even if Cogeco accepts the offer, the Legault government appears ready to intervene.

"There is no question of letting this Quebec company move its head office to Ontario," Quebec Premier François Legault said Wednesday during a radio interview with FM93, a Cogeco-owned station.

The premier didn't give details about what he would have done.

Legault added that members of his government had spoken with Louis Audet on Wednesday morning.

— With files from Julien Arsenault in Montreal

This report by The Canadian Press was first published Sept. 2, 2020.

Companies in this story: (TSX:CCA, TSX:CGO, TSX:RCI.B)

 

Tara Deschamps, The Canadian Press