Almost two decades after they joined forces to keep cable operator Videotron on home soil, Quebecor Inc. and the Caisse de dépôt et placement du Québec have struck an agreement worth $1.69-billion to give the company full control over its main subsidiary.
Quebecor said Tuesday it will repurchase the Caisse’s remaining 18.5-per-cent stake in Quebecor Media Inc. by issuing $150-million worth of convertible debentures and will use cash to fund the rest of the buyout.
The pension-fund giant helped Quebecor finance the acquisition of Videotron for $5.5-billion in 2000, keeping it in Quebec and out of the hands of Toronto-based rival Rogers Communications Inc. It also established what would become Quebecor’s main source of revenue and profit growth as the telecom business outperformed the company’s broadcast and publishing assets, particularly after Videotron launched a wireless business in 2010 that now controls about 16 per cent of Quebec’s mobile market.
But the purchase once faced harsh criticism for the high price paid amid a crumbling market for tech investments and for what some characterized as the Caisse advancing a Quebec-centric political agenda.
The deal was a disaster for the pension fund in the initial years and it wrote down the value of its investment to just $436-million by the end of 2002, but the value rebounded in later years.
The Caisse invested a total of about $3.1-billion into Quebecor Media, and after a series of share purchases by Quebecor since 2012 as well as dividend payments of about $400-million, the fund will have made back about $4.1-billion once this deal concludes (it is expected to close on June 22, pending approvals including that of the Toronto Stock Exchange).
Quebecor’s chief executive officer, Pierre Karl Péladeau, touted the joint investment for keeping the Videotron headquarters in Montreal, creating 4,000 jobs in Quebec and leading to the investment of $2-billion in the company’s wireless business.
“We’ve been honoured and proud to be associated with the Caisse for the safekeeping of Videotron,” Mr. Péladeau said at the company’s annual shareholder meeting in Montreal on Tuesday.
In a lengthy address, the former leader of the separatist Parti Québécois who returned to the helm of his family-controlled company just more than a year ago, praised the pension fund for a deal he said was an “unexpected success” that contributed to Quebec culture and economic opportunity.
He said the deal will give Quebecor access to 100 per cent of the cash flow it generates, allowing the company to set a more aggressive dividend policy. Quebecor announced Tuesday it is doubling its quarterly dividend, raising the payout to 5.5 cents a share, up from 2.75 cents.
Michael Sabia, CEO of the Caisse, said taking part of the payment by way of convertible debentures allows the fund to “maintain an interest in the business, while providing Quebecor with increased financial flexibility to pursue its growth plan.”
RBC Securities analyst Drew McReynolds said the price for the deal represents a “reasonable multiple” of about 8.0 times EBITDA (earnings before interest, taxes, depreciation and amortization), which is in line with what Quebecor paid to repurchase previous chunks of the Caisse’s interest.
Analysts were generally positive about the transaction, which was widely expected to occur at some point this year, noting it is likely to reduce the “holding company discount” the market attributed to Quebecor stock. Its shares were up 3 per cent or 71 cents on Tuesday, closing at $24.04.
In an unrelated transaction also announced Tuesday, Montreal-based technology and business-consulting firm CGI Group Inc. said it, too, is repurchasing shares held by the Caisse, in its case worth a total of $273-million.
Quebecor also published its results for the first quarter on Tuesday, with analysts saying its financials were in line with expectations, although it reported weaker subscriber numbers than expected.
Profit increased to $56.7-million, up from $3.9-million in the same period last year, which Quebecor attributed mainly to a favourable variance on the valuation of financial instruments.
Revenue was up slightly to $1.01-billion, slightly below analyst estimates, while adjusted operating income was $415-million, up 13.6 per cent and ahead of forecasts.
Videotron added 23,300 new wireless customers in the period, which fell short of analyst estimates of about 25,000 and was less than the 27,000 the company added in the first quarter of 2017.
The company also added fewer internet customers than expected, at 8,100, and lost 15,000 cable subscribers, which was more than predicted.