Rogers Communications Inc. and Altice USA Inc. may have been rebuffed by Cogeco’s executive chairman Louis Audet, but they’re not walking away from their attempt to acquire the Quebec-based cable business, according to industry analysts and a source.
Rogers and New York-based cable company Altice went public last week with an unsolicited $10.3-billion offer to buy Cogeco Inc. and Cogeco Communications Inc. In the deal, Altice would acquire Cogeco’s U.S. cable network, Atlantic Broadband, while Rogers would snap up Cogeco’s Canadian operations.
The offer was immediately rejected by the Audet family, which controls Cogeco through its ownership of multiple voting shares. On Monday, Mr. Audet reiterated the family’s position that the Cogeco shares are not for sale. “And let me be clear, our refusal is not a negotiating position, it is definitive,” Mr. Audet said in a statement.
But Rogers and Altice aren’t giving up, according to a source familiar with the matter. While some analysts have speculated that Rogers might sell its stake in Cogeco if the takeover attempt fails, Rogers has been an investor in the company for 20 years and is playing the long game, said the source, whom The Globe and Mail is not identifying because the person is not authorized to speak publicly on the matter.
Instead, Rogers and Altice may threaten to ramp up competition in Cogeco’s regions to press the Audet family to sell, according to TD analyst Vince Valentini. It is also likely that the two bidders will come back with a higher or restructured offer, Mr. Valentini said in a note to clients on Tuesday.
“Notwithstanding our view that it will be an uphill climb to convince the Audet family to relinquish control of Cogeco at this time ... we do not believe that Altice/Rogers will give up in the near term,” Mr. Valentini said.
“We expect a full-court press on the family and the Quebec government, as well as subordinate voting shareholders,” he added.
Altice and Rogers are offering the Audet family $800-million for their holdings, which, according to Mr. Valentini’s calculations, translates to about $500 per share of Cogeco Inc. (The Audet family owns 10 per cent of the equity in Cogeco Inc., but controls 69 per cent of the company’s shares through their ownership of multiple voting stocks that grant 20 votes per share. Cogeco in turn owns a 33-per-cent equity interest in Cogeco Communications, but 83 per cent of the votes by holding multiple voting shares in the subsidiary that have 10 votes each.)
Other shareholders would receive $106.53 per Cogeco share and $134.22 per Cogeco Communications share.
While the high premium on the offer to the Audets was intended to persuade them to sell, Mr. Valentini says it may have been one of the reasons for the family’s immediate rejection. Mr. Valentini points to so-called coattail provisions, which in the event of a takeover entitle holders of the subordinate voting shares to get the same price for their shares as the Audets. The holders of subordinate voting shares at Cogeco Inc. are unlikely to vote in favour of waiving those provisions for a deal that pays them so much less, Mr. Valentini said.
“We do not believe that the family would want to leave a legacy of short-changing long-standing and loyal [Cogeco] shareholders by lining their pockets at the expense of those people/funds,” Mr, Valentini said.
The proposed takeover has also drawn opposition from Quebec Premier François Legault, who has expressed concerns about Cogeco’s head office relocating outside the province if the company were acquired. “It’s out of the question that we lose a head office as important as Cogeco,” Mr. Legault said during a radio interview last week.
In response, Rogers promised to keep the Cogeco headquarters and management team in Quebec if it succeeds in its takeover attempt. If that isn’t enough to appease the Quebec government, Rogers could simply sell the Quebec portion of the cable business to Montreal-based Quebecor Inc., according to analysts.
RBC Dominion Securities analyst Kutgun Maral said that although the path to a successful takeover is unclear, Altice and Rogers are unlikely to simply throw in the towel.
“We assume Altice was aware of the potential roadblocks with the controlling shareholder and we would be somewhat surprised if it simply walked away given the unique opportunity to achieve greater scale across adjacent cable footprints,” Mr. Maral said in a note to clients last week.
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Alexandra Posadzki
Andrew Willis