The news that Rogers Communications is in talks with Teachers to buy their controlling interest in MLSE, the company that owns the Leafs, Raptors, Air Canada Centre, Toronto FC and Toronto Marlies of the AHL as well as related real estate and broadcasting interests jumps off the page, or your cell phone, depending on where you're getting your news these days. I think we can count on our cable bills going up, one way or the other; just because they always do. But is the deal as obvious as it sounds? How does Larry Tanenbaum fit in? Do the people getting ready to drop well over a billion dollars know that Nazem Kadri is the Leafs' No.1 centre?
A few thoughts from here:
• The reported price -- $1.3-billion -- for Teacher's 66 per cent stake seems cheap for a business that generates just south of $500-million in revenue annually. According to sources close to MLSE, NFL teams - a league where teams actually make profits - are valued at about 3.5x revenue. On that math a $1.8-billion price tag for the whole operation and $1.3-billion for Teachers stake seems sensible. But as we'll see below, Teachers is not desperate to sell a business that generates steady cash flow, so there will have to be a considerable premium paid by any purchaser. I'd be surprised if that premium doesn't push the overall value of the company well over $2-billion.
• This move, should it come to pass, can only happen with the cooperation of Larry Tanenbaum the next largest shareholder with 20.5 per cent as he has right of first refusal if another shareholder wants to divest. If he ever wants to be the majority owner - more on that below -- he'll have his chance.
• While the business relationship between MLSE and Rogers goes back at least as far as 2006, the idea of Teachers selling is reasonably new. In 2009 when Teachers bought BellGlobeMedia's 7.7 per cent share, Erol Uzemeri said then that MLSE remained a long-term hold for Teachers. He may have been toeing the corporate line, but when Dave Shoalts and I met with Uzemeri in September in his first in depth interview since leaving Teachers - where he was head of investments and the point person for the pension fund on the MLSE board - for our series on MLSE "Too Big to Win" this is what he told us about Teacher's long-term view:
"Teacher is a real fiduciary. Other owners can hold on to it just because they want to. That's not Teachers position. We have a long-term view…we're focused on is it a good investment for our liabilities, which also grow, so if it's growing at an appropriate rate, we hold on to it.
There continue to be opportunities for MLSE I believe…we're never in a position where we're saying 'it's going to flat line, but we like hanging out at the ACC so we we're not going to sell'…If we came to the time it wasn't an appropriate investment, we'd find a good home for it, but we're a long term investor and we still see opportunities to grow."
• Having all of Toronto's major sports properties under a single umbrella has been long been a passion of Tanenbaum's. As far back as 2000 he was talking privately about a Toronto sports landscape where each of the major franchises; real estate and a broadcaster entity were three legs of a stool; the implication being he would be the one sitting on it. The question is does he have the money to pull it off? He's rich, but is he that rich?
• Is Rogers' purchase of MLSE a slam dunk? Well, here's what a source close to Tanenbaum said about his interest in become the majority owner in an interview with me two years ago: "He's got hundreds of millions of dollars of his own money into this, but he's got a lot of patience, that's what's really stood him well in his years in business, and if God gives him the strength he's going to outlast Teachers. He's going to put himself in position to call the shots." Does that sound like a guy who's going to step aside and let Rogers come in as the next majority owner?