The final terms speak to the two big companies’ desire to get the deal done, even if it meant sacrificing some of the upside. In exchange for letting Rogers and BCE control the TV rights to Leafs and Raptors games, Mr. Tanenbaum will increase his stake to 25 per cent of the company when the deal closes. Sources say he will contribute some of his own funds to the deal, but his increased share in MLSE comes at a significant discount to what he would have otherwise had to pay in a traditional sale.
As well, Mr. Tanenbaum, who had right of first refusal on the Teachers stake, gets to keep a number of other high-profile positions, including chairman of MLSE, and a spot on the NHL governor’s executive committee – an exclusive group of 10 hockey owners who carry considerable sway over key decisions made in the league.
The deal gives MLSE a total equity value of $1.66-billion, and an enterprise value of $2.1-billion including debt. Sources said the purchase price amounts to a multiple of 21 times MLSE’s earnings before interest, taxes, depreciation and amortization. That suggests that the firm kicks off profits of roughly $100-million a year.
Rogers and BCE are each putting up $533-million of cash to buy the stake, with the remainder being financed.
Teachers put its stake in MLSE on the auction block in March, hiring Morgan Stanley and saying it had received expressions of interest from several potential bidders.
Behind the scenes, bidders expressed frustration at the power Mr. Tanenbaum wielded over the process, since any buyer of MLSE would have to work closely with him on running the company.
For Rogers and BCE, the tension may just be ramping up. The two companies have essentially assured themselves of a half stake in the TV rights to Leafs and Raptors games, which they plan to broadcast on their respective cable sports networks, and stream over cellphones and wireless devices. They will also have equal shares in other assets, such as the Toronto FC soccer team and broadcasting assets such as Leafs TV and NBA TV Canada.
Rogers and BCE (which owns Bell Canada), will have to divvy up the games among them, a process that marks a significant shift for the rivals. Of the 82 Leafs games played each year, MLSE owns the rights to about 50 of them.
The remainder are held by the NHL, mostly Saturday night contests, that it sells as the Hockey Night in Canada package, currently held by CBC until 2013.
Mr. Mohamed said in an interview that programming executives from the two companies will meet to divide up the games. Keith Pelley, president of Rogers Media, will oversee the negotiations for Mr. Mohamed, while the process at BCE will likely be steered by Kevin Crull, president of Bell Media.
In an unusual move, both CEOs will keep a close watch on the process, a source close to the matter said, suggesting how important the games are to each company.
Indeed, Mr. Cope characterized those future talks as “sensitive” on Friday.
There are still regulatory hurdles to be overcome. Both companies have been in touch with regulators in Ottawa to tell them about the deal, and it is expected the federal Competition Bureau will scrutinize the transaction.
The Canadian Radio-television and Telecommunications Commission will also have to look at the change in ownership of Leafs TV and NBA Canada TV, but that is unlikely to cause much friction to the larger transaction.
The National Hockey League and National Basketball Association must also approve the sale, but both leagues have already taken a look at Rogers and BCE.
Since Research In Motion CEO Jim Balsillie’s failed attempt to purchase an NHL franchise a few years ago, the league has put in place a much more rigorous process for bidder pre-approval.
Sources said that in order for prospective bidders to get a seat at the table in Teachers’ auction process, they had to provide financial disclosure statements to the leagues, and had to be vetted by the leagues. That process took weeks.
