Edward Rogers has received inquiries from Ontario’s securities watchdog amid uncertainty over the leadership of Rogers Communications Inc., according to a letter sent to the Toronto-based telecom on Monday by a lawyer representing Mr. Rogers.
A dispute over which independent directors currently sit on the board of Canada’s largest wireless carrier has caused the company’s stock price to fall and triggered downgrades from analysts, says the letter, which urges the company to respond swiftly to a legal petition Mr. Rogers plans to file in the B.C. Supreme Court on Tuesday.
“It is in best interests of RCI that this be resolved quickly,” reads the letter sent by Ken McEwan of McEwan Cooper Dennis LLP and viewed by The Globe and Mail.
The letter was sent to a law firm acting for the company.
Mr. Rogers, who sits at the helm of the family trust that controls the telecom and media giant, was ousted as board chair last week. He then announced plans to replace the five independent directors who had opposed an attempt he made last month to overhaul the company’s management team. On Sunday, Mr. Rogers was reappointed chair at a board meeting that his mother, two of his sisters and the five directors he claims to have removed say was invalid.
The two sides are at odds over the legality of reconstituting the board without holding a shareholder meeting. Mr. Rogers has said the law in British Columbia, where Rogers is incorporated, allows this change to be made through a written resolution – an assertion that the other directors challenge. He plans to petition the court to declare that the reconstituted board is valid.
Melinda Rogers-Hixon, deputy chair of the board, said in a statement on Monday that “the duly elected board of RCI remains.” She added she and her mother, Loretta Rogers, and sister Martha Rogers are committed to ensuring that this remains the case.
The power struggle at Canada’s largest wireless carrier comes in the middle of the $26-billion acquisition of Shaw Communications Inc. and erupted after Mr. Rogers attempted to unseat CEO Joe Natale and remove other executives.
“Our client has received inquiries from the Ontario Securities Commission,” reads the letter from Mr. McEwan, noting that a lawyer representing Mr. Rogers has advised the commission he will bring legal proceedings “as quickly as possible to obtain a ruling of the court.”
The letter does not say what the OSC is inquiring about, but the regulator’s objectives include being able to assess whether investors have enough information to make decisions.
“Obviously it would not be in the best interests of RCI to have the regulator consider it necessary to intervene,” the letter reads.
A spokesperson for the OSC said the regulator does not comment on matters relating to specific companies.
Scott Davidson, a spokesperson for Rogers Communications, said the company “welcomes the opportunity for the court to consider the importance of conducting a shareholders meeting to change the board of directors.”
“We have not yet received Mr. Rogers’s final application or supporting material. When we have it, the company will be responding fully so that the court has a complete record for considering the interests of all of the company’s shareholders and other stakeholders when making its decision,” Mr. Davidson said in a statement.
A spokesperson for Mr. Rogers did not immediately respond to a request for comment.
Rogers’s share price had been holding up reasonably well over the past couple of weeks, but now the issues of leadership and governance appear to be a key threat to investor confidence.
On Monday, TD Securities analyst Vince Valenti slashed his target price for the stock – the price at which he expects the shares will trade within 12 months – to $69 from $76. That amounts to a 10-per-cent cut.
“As much as we like the assets and the improving momentum at Rogers” – including benefits from the Shaw deal, which would give Rogers a national footprint for its wireless business – “we believe it is necessary to implement a discount on our target price,” Mr. Valenti said in a note.
Although he maintained a “buy” recommendation on the stock, given his belief that it is cheap relative to other telecom shares, Mr. Valenti cautioned that volatility could pick up in the near term because of the uncertainty over the management team.
Drew McReynolds, an analyst at RBC Capital Markets, trimmed his target price on the stock to $72 from $76. He also lowered his recommendation to “sector perform” from “outperform.” Although the terminology is different, the change is equivalent to moving from “buy” to “hold.”
“Collateral damage now seems inevitable, and in our view will only grow the longer a definitive resolution takes,” Mr. McReynolds said in a note.
This collateral damage, he added, could include less effective management while Rogers is emerging from the effects of the pandemic and at a time when competition within the telecom sector is intensifying. It could also define attitudes toward corporate governance at a company still largely controlled by the Rogers family through a dual-class share structure, which gives the family trust a voting majority on company matters.
“In our view, functioning governance and family-board-executive alignment absolutely do matter at this juncture for Rogers with respect to creating value for shareholders from current levels,” Mr. McReynolds said.
He pointed to day-to-day operations, but also crucial decisions surrounding the Shaw transaction, including financing for it, and integrating the two companies.
The share price has trailed that of key peers Telus Corp. and BCE Inc. this year. Part of the reason, according to analysts, is that Rogers derives a greater share of its profit from roaming charges, which have been slow to return after lockdowns and travel restrictions.
The stock slumped 5.8 per cent on Monday, to $56.55, even as BCE and Telus remained relatively steady. Shaw’s share price fell 2.4 per cent, widening the discount between the current price and the agreed-upon takeover price to $5.78 per share, or 14.3 per cent.
Tim Casey, an analyst at BMO Nesbitt Burns, maintained a “buy” recommendation on Rogers, but cut his target price to $68 from $72, noting that the Shaw transaction could be delayed by the turmoil until the second half of next year.
“While both parties support the Shaw acquisition, we believe investors will start to ask questions about the risk these developments pose with respect to the Shaw deal closing,” Aravinda Galappatthige, an analyst at Canaccord Genuity Capital Markets, said in a note.
Mr. Galappatthige does not see a direct threat to the deal arising from the conflict within Rogers, but said he expects that incremental risk will be reflected in Shaw’s share price. He also downgraded his recommendation on Rogers to “hold” from “buy,” and slashed his target price to $62 from $69 – a 10-per-cent cut based partly on his belief that the pain at Rogers could translate into gains for the company’s key competitors.
“Given we are going into a season of hyperactivity in the wireless market (Black Friday, Cyber Monday, pre-Christmas promos), we suspect these distractions could result in an advantage for BCE and Telus,” Mr. Galappatthige said.
He added: “We also believe that the current state of affairs with respect to corporate governance at Rogers is yet another reminder to investors of the genuine differences between BCE/Telus and family-controlled entities with dual-class capital structures.”
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