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Eric Boyko, president and CEO of Stingray Digital poses in Montreal, June 4, 2015.

Christinne Muschi/The Globe and Mail

Caisse de dépôt et placement du Québec is increasing its position in Stingray Digital Group Inc. after balking at making a meaningful investment in the Montreal media company last year because of its dual class share structure.

The giant pension fund manager, which had assets topping $248-billion at last count, said Monday that it is buying two million of Stingray's subordinate voting shares for $14.3-million. The purchase more than triples its existing stake of 620,000 shares in the music provider.

"Stingray already has a strong reputation through its global footprint and demonstrates significant growth potential," Christian Dubé, the Caisse's executive vice-president in charge of Quebec-based investments, said in a statement Monday. "As a long-term investor in high-performing companies, it was a natural choice for us."

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The pension fund was singing a different tune a year ago.

According to sources, the Caisse declined to invest in share offerings by several Quebec-based companies last year unless they pledged to lower the number of votes per share of their more-powerful multiple voting share stock to six or less. Bombardier Inc. was one company that clashed with the Caisse over its request, sources say. Stingray was another.

In the end, the Caisse placed a small order as part of Stingray's initial public offering last June but only near the end of the marketing period when the stock was more than 10 times oversubscribed, said one person familiar with the deal. A similar story played out at Bombardier.

For more than 20 years, the Caisse has had a policy of seeking to avoid buying into companies that have dual class shares. However, it has said it is not dogmatic about that policy and looks at each case on its own merits. Performance plays a big role in that decision, Caisse chief executive Michael Sabia has said, noting the fund manager has several significant stock positions in profitable companies with two classes of shares, notably CGI Group.

Mr. Sabia told a Toronto audience last week that he has grown increasingly sympathetic toward companies that use dual-class shares appropriately because markets are becoming more impatient and more short-term oriented. He said capital markets have become about trading companies at the expense of building them.

"I think a lot of these companies want the time to build, and they want the ability to invest," he said. "A founder wants to be able to continue to drive the strategy of the business."

At Stingray, that strategy includes a focus on acquisitions. And it's paid off. Net profit for the company's first year as a public company soared to $13.9-million or 29 cents a share from $6.6-million the year before. Annual revenue rose 26 per cent to $89.9-million.

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The company will unveil another deal Tuesday. A well-placed source said it will announce it is buying assets belonging to Bell.

The Caisse's transaction is part of a larger sale of Stingray shares by Telesystem, a media and technology holding company controlled by billionaire entrepreneur Charles Sirois and his family.

Telesystem said it entered into a private placement bought deal with National Bank Financial and GMP Securities to sell 4.3 million subordinate voting shares in Stingray at a price of $7.15 per share. Gross proceeds to the Sirois holding will be $30.8-million. Stingray shares ended the day Friday at $7.25.

Under such bought deals, the investment banks commit to buying the stock they then resell, eliminating the risk for the seller. In return, they typically receive the shares at a discounted price.

Telesystem said it is doing the sale for "estate planning purposes."

It has no intention of exiting the stock, saying "the successful business model and growth strategy" of the company reinforces its intention to maintain a long-term position in the company.

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Telesystem will have 500,000 subordinate voting shares and 5.5 million multiple voting shares in Stingray when the offer closes, representing 28 per cent of the company's voting rights. The ownership position gives it three board seats.

Founded and controlled by Montreal entrepreneur Eric Boyko in 2007, Stingray has parlayed CBC's former Galaxie music service into one of the world's top providers of packaged music. The company buys licences to songs and then makes money by selling the music as pre-programmed packages to cable providers, satellite operators and other broadcasters. It typically gets paid a fee for every subscriber.

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