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Rogers, Teachers fail to connect on Leafs deal

Rogers held preliminary discussions about buying control of Maple Leaf Sports and Entertainment Ltd. this summer, but talks with the sports company's majority shareholder, the Ontario Teachers' Pension Plan, have stalled.

The cable and wireless giant has long been considered a contender to buy a stake in the country's premier sports business, which owns the Toronto Maple Leafs, basketball's Toronto Raptors and the Toronto FC soccer franchise.

But no deal is imminent and sources close to Teachers, which runs one of the Canada's largest private equity funds and owns 66 per cent of MLSE, said it was not actively shopping the asset around to buyers. After an inquiry was made late this summer, Rogers has not revisited the conversation. It is unclear which side initiated the discussion.

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After a report surfaced Tuesday that Rogers had made a bid for MLSE, Teachers sent a message to the National Hockey League saying it was not discussing a sale of its stake with potential suitors.

Rogers is seen as a logical buyer of Teachers' stake, since it owns the Toronto Blue Jays and the strategy of consolidating four of the city's sports franchises with its media and telecom assets would create a formidable force. The deal also fits with strategy of cable and wireless companies wanting to own content for their platforms.

However, if Teachers were to start a sale process involving the Toronto Maple Leafs, it would have to get the NHL's permission before a prospective buyer could look at the financial books, a rule that was introduced in 2007 after an ownership scandal involving the loans made to the Nashville Predators. The NHL has not granted such permission, sources said.

Teachers bought its stake in MLSE in 1994 for $180-million. The company is now believed to be valued at more than $1.7-billion, meaning Teachers stake is worth between $1.1-billon and $1.2-billion. However, if Teachers were to sell its two-thirds share of the profit-generating company, it would want a significant premium on that valuation, several sources said.

At a private-equity fund like Teachers, all investments are for sale at a price. The pension faces a funding deficit, and incoming contributions to the pension fund are no longer enough to cover payouts to retired teachers, which puts pressure on the fund to sell assets when a compelling bid comes along.

But there are also compelling reasons to hold on to MLSE. Teachers has a long track record with MLSE, and it knows the business well. Selling means finding a new home for more than $1-billion in fresh investments that the fund won't know as well, which one person close the fund said is a "huge risk."

And while MLSE at the moment doesn't pay out cash to its owners, preferring instead to invest the money in its business, Teachers could vote to change that as majority owner, if it wants the cash flow to pay benefits to pensioners, the person said.

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Larry Tanenbaum, who controls a minority stake in MLSE through his holding company, Kilmer Sports, holds a right of first refusal on the Teachers' stake. He has yet to seek an outside appraisal of the company.

Teachers' game plan if it were to sell would be to solicit the highest bid possible from buyers able to prove they can come up with the cash, and then see if Mr. Tanenbaum is willing and able to match it. Given the likely enormous interest, it would be a lengthy process, and not limited to one company.

If the Ontario Teachers' Pension Plan is actively shopping its majority stake in MLSE, there will be no shortage of eager buyers from inside and outside Canada.

"It's one of the most valuable groupings of sports assets in the world," said a U.S. banker who has been involved in several major sports deals in recent years. "If anybody believed it was for sale, there would be a long line [of willing suitors]."

But so far Teachers does not appear to have sought an outside appraisal of the company's worth, banking sources say. "At some point – and they don't need to do it today – they will have experts validate the price," one banker said.

Teams in all but the biggest television markets have been a tough sell since the global financial freeze and subsequent economic recession of 2008 and 2009, sports franchise experts say.

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About half a dozen teams in the National Hockey League, including the Dallas Stars and Atlanta Thrashers, have been on the selling block, with no takers.

But the Toronto Maple Leafs and other sports franchises under the MLSE umbrella are a different story entirely, consistently drawing large revenue-generating crowds despite poor results on the ice, the court and the soccer pitch, analysts say.

"If I owned those assets, it would take a ton of money to pry them loose," a banker said.

The owners of MLSE have tried on a number of occasions in recent years to resolve what sources describe as an increasingly tense alliance between the franchise's two major owners, Ontario Teachers and Mr. Tanenbaum. Mr. Tanenbaum has been pushing to invest more money into the struggling team and has grown increasingly frustrated with Ontario Teachers' resistance to additional spending on a franchise that, despite its poor performance on the ice, has delivered solid returns to its shareholders.

"There has been a lot of tension. Tanenbaum is a classic rich guy who would do anything to win and Teachers has a cold bottom line approach," the source said.

People close to Mr. Tanenbaum said he has been seeking more influence over the team's management and he has made it clear to the board, one source said, "that he is not a seller."

A possible ally for Mr. Tanenbaum could be Rogers Communications. Mr. Tanenbaum was close friend with the company's late founder Ted Rogers and the two joined forces in 2008 to occasionally host National Football Team games in Toronto.

Though sources with Rogers said appetite for doing a deal at the premium Teachers would want is "lukewarm," the cable company has the means to buy MLSE, with nearly $350-million of cash on hand and more than $2-billion of untapped credit.

"While a deal does not appear imminent, we would not be overly surprised to see such a deal over time," said Dvai Ghose, an analyst at Canaccord Genuity Corp.

With files from Susan Krashinsky, Iain Marlow, Jeff Blair, Michael Grange, and David Shoalts

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