Quebecor Inc. is making good on long-held plans to buy out the interest it does not hold in its main subsidiary, with a $500-million deal announced Wednesday.
The Montreal-based company said it has purchased for cancellation 7.3-million shares of Quebecor Media Inc. owned by the pension-fund giant Caisse de dépôt et placement du Québec.
After the transaction, the Caisse will own an 18.9-per-cent interest in Quebecor Media, reducing its prior equity stake of almost 25 per cent. "This transaction continues the process announced in October 2012, when we introduced [the] plan," Quebecor chief financial officer Jean-François Pruneau said in a statement.
He added that Quebecor's plan is to eventually own all of the shares of its subsidiary. Quebecor Media fully owns the Videotron Ltd. subsidiary – which operates the cable and wireless business that is Quebecor's largest source of revenue – and also operates media, sports and entertainment divisions. It owns close to 70 per cent of broadcaster TVA.
Quebecor said it will fund the share purchase using debt. RBC Dominion Securities credit analyst Andrew Calder said that will increase the company's debt leverage to about four times net debt to EBITDA (earnings before interest, taxes, depreciation and amortization).
He noted this is comparable to the company's leverage ratio after it made its first repurchase of the Caisse's interest in 2012, when it reduced the pension fund manager's stake from 45 per cent to 25 per cent in a $1.5-billion transaction.
Mr. Calder said he expects Wednesday's deal to have a neutral impact on Quebecor's bonds in the near term.
The Caisse originally helped Quebecor fund the $5.5-billion acquisition of Videotron in 2000. Quebecor has until 2019 to repurchase the balance of the Caisse's interest, or spin off Quebecor Media through an initial public offering, or sell the shares to another large investor.
Based on the valuation used in Wednesday's transaction, the Caisse's remaining 18.2-million shares are worth about $1.25-billion.
Quebecor has been mulling a national expansion of its Quebec-based wireless business, but has repeatedly said it would work to protect the company's balance sheet given its plans to purchase the Caisse's stake in Quebecor Media.
"We believe this deal is indicative that Quebecor will not pursue a national wireless strategy," Macquarie Capital Markets analyst Greg MacDonald said Wednesday, adding that staying close to home with its wireless business would be a "positive for the stock."
The stock should also benefit from a reduction in any perceived holding company discount, he said.
Mr. MacDonald estimated the deal is valued at eight times EBITDA, which he called a "reasonable private market value."
Barclays Capital's Phillip Huang similarly highlighted Quebecor's perceived shift away from wireless expansion as a positive factor, and suggested the company would instead favour a "more prudent investment in sports."
Quebecor applied in July to bring an NHL team to Quebec City, and the expansion fee if it wins that bid is expected to be in the range of $500-million (U.S.). The company said in July it plans to approach potential partners for that investment.
Quebecor's B-class shares were up 17 cents at $28.04 in midafternoon trading on the TSX on Wednesday.
For its part, the Caisse said in the statement the transaction is a continuation of its efforts to "rebalance our portfolio, a process we started in 2012."