Early in what is proving to be an unsuccessful hostile run at Cogeco Inc. and subsidiary Cogeco Communications Inc., U.S. cable kingpin Dexter Goei made a telling comment about family businesses.
In September, Mr. Goei, chief executive officer at New York-based Altice USA Inc., said for his bidding partner at Rogers Communications Inc., a $1.6-billion stake in the two Cogeco Cogeco businesses was “effectively dead money.”
Mr. Goei simply meant that investors give Rogers Rogers no credit for owning a minority stake in Cogeco for the past two decades. Rogers is a telecom company, and its stock trades at a multiple to the profit per share it earns from cable and mobile phone networks. Rogers shareholders don’t award that multiple for an investment in a rival. Mr. Goei said that when it comes to the Cogeco investments, Rogers would “like to be able to sort out their situation, one way or the other.”
However, for Rogers CEO Joe Natale and the company’s board, the concept of “dead money” has a different meaning. As Rogers and Altice Altice hit the Nov. 18 deadline for withdrawing their Cogeco offer, something that seems a foregone conclusion, it’s important to recall what Mr. Natale is trying to achieve.
Rogers hired Mr. Natale away from Telus three years ago and tasked him with building on the legacy of company founder Ted Rogers, who passed away in 2008. Ted – somehow, it doesn’t feel right to call him Mr. Rogers – was a true original, a legendary Canadian entrepreneur, consistently able to spot shifts in the telecom sector ahead of everyone else. Visit Rogers’s Toronto head office and talk to long-time employees, and there’s a sense that Ted is still just down the hall. At some point, the reverence can get in the way of making smart decisions.
Rogers’s stake in Cogeco is part of Ted’s legacy. He built the toehold investment in hopes of some day convincing the Montreal-based companies' founding family, the Audet clan, to sell him their birthright. Prior to Mr. Natale’s arrival, two Rogers CEOs held on to the Cogeco stake rather than mess with something that Ted put in place. (It helped that over time, the Cogeco investments increased in value.)
Mr. Natale, with the support of a Rogers board that includes the founder’s widow and offspring, showed in September that he is willing to move on from what the founder created. On several occasions in the past three months, Rogers’s CEO said he moved on Cogeco to “resolve” the long-held investment. He did so knowing full well that hostile takeovers of family-controlled companies are likely to fail.
If the hardball tactics worked – if the Audet family decided they preferred banking $900-million to controlling a cable company or if minority investors pushed for a sale – Rogers would win a prize it long coveted. The synergies that would come from blending Cogeco’s networks into Rogers are staggering.
If the bid fails, as now seems likely, Mr. Natale still gets resolution. He recently said: “If it’s not accepted, we would do what you would expect us to do.” Rogers is universally expected to eventually sell the Cogeco stakes and plow that cash into buying more wireless spectrum, building out 5G networks and winning away customers from the Audets and other rivals.
Rogers currently has a strong balance sheet – another shift away from the way Ted ran the company – and has the luxury of timing the sale of its Cogeco shares. However, as the deadline arrives on Rogers’s bid for its Quebec rival, Mr. Natale is on the verge of clearing away an investment that’s dead money and establishing a culture that’s no longer beholden to a revered founder.
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