As Quebecor touts liquidity, investors question why Caisse still holds stake

Quebecor Inc.'s growing wireless business continues to support a healthy balance sheet that has some investors wondering when it will make good on its pledge to buy out the stake the Caisse de dépôt et placement du Québec still owns in the company's main subsidiary.

CEO Pierre Karl Péladeau reiterated on Wednesday that the Montreal-based telecom and media company has more than $2-billion in available liquidity, giving it plenty of room to invest in its wireless and cable networks as well as repurchase the Caisse's interest.

"We enjoy a very strong financial position that will provide us with the flexibility required to execute our plan, including the takeout of our financial partner," said Mr. Péladeau, who returned to the helm of his family-controlled company early last year after a foray into provincial politics.

But some are questioning why the company has yet to announce an agreement to buy the Caisse's 18.5-per-cent interest in Quebecor Media Inc. Such a deal, which analysts predict will cost between $1.6-billion and $1.9-billion, is widely seen as a catalyst that would eliminate the holding company discount the market is presently attributing to the company's stock.

"You've got $841-million of cash, you've had most of that cash for some time now since you've sold the spectrum," TD Securities analyst Vince Valentini said on an investor call on Wednesday, referencing two deals Quebecor struck last year to sell wireless airwaves, bringing in close to $615-million. The company also has access to $1.27-billion in unused credit facilities.

"Is there something happening in the background with the Caisse that's precluding a deal from getting done yet or should we be expecting something very soon?"

The Quebec pension giant helped fund the $5.5-billion acquisition of Quebecor's cable business Videotron in 2000, keeping it out of the hands of rival Rogers Communications Inc. Quebecor has been purchasing the Caisse's interest back in chunks over the years, but if it does not buy out the balance by early next year, the pension fund has the right to force an IPO of its interest.

Mr. Péladeau replied that he had no change to report: The Caisse "was considering taking their stake out of the company," he said, adding "We will continue in this direction" and that he could say nothing further before an announcement is made. "And an announcement will be made."

Quebecor reported fourth-quarter results largely in line with analyst expectations on Wednesday, bolstered as usual by its wireless division, which launched in 2010. The company now controls 16 per cent of Quebec's mobile market and passed the million-subscriber mark in November.

The company said it had total revenue of $1.06-billion in the quarter, up less than 1 per cent from the same period a year earlier. Profit declined by almost half to $65.6-million down from $123.3-million in the fourth quarter of 2016, which Quebecor attributed to a loss on the valuation of convertible debentures, compared with a gain a year earlier.

It posted $412-million in adjusted operating income, up almost 6 per cent from 2016 and ahead of analyst estimates for $406-million. But with adjusted earnings per share of 33 cents, it fell short of consensus forecasts for 37 cents.

Videotron continues to be the company's primary strength, with revenue up 4.5 per cent to $814.4-million in the fourth quarter. It added 33,700 new wireless subscribers, up from 26,000 in the same period in 2016 and ahead of most analyst expectations. Wireless revenue also grew 18 per cent to $161.8-million.

Meanwhile, Videotron lost 8,500 cable TV and 16,500 home-phone customers in the quarter, although its broadband business continued to grow with 12,400 new internet subscribers.

Canada's wireless market as a whole enjoyed strong growth in 2017 and Desjardins Securities analyst Maher Yaghi said Videotron's wireless strength was in line with the general Canadian trend. He praised Videotron's "excellent performance" in the fourth quarter after its main Quebec rival BCE Inc. reported very strong wireless numbers of its own in the period.

Quebecor's media business reported a 10.2-per-cent decline in revenue in the quarter to $199.5-million as broadcasting and print revenues were both down due to lower ad sales. The company owns the TVA television network as well as numerous Quebec newspapers and magazines.