National Post (Latest Edition)

At Co­geco there are no coat­tails.

- Business · Canada News · Quebec · Montreal · New York City · United States of America · Toronto · François Legault · Ontario · Pierre Karl Péladeau · Cogeco · Dexter · Altice USA · Rogers Communications · Rogers · Caisse de Depot et Placement du Quebec · Vidéotron · Bell Canada · Competition

We take you back to early Septem­ber and a brief re­view of the 24-hour Que­bec Inc. tor­pedo of a pro­posed takeover of the Mon­treal-based Co­geco tele­com com­pa­nies — 24 hours that high­light in­vestor, gov­er­nance and com­pe­ti­tion is­sues.

In the early evening of Tues­day, Sept. 1, Dex­ter Goei, chief ex­ec­u­tive of the New York-based broad­band com­pany Altice USA Inc., called Louis Audet, the ex­ec­u­tive chair­man of Co­geco Com­mu­ni­ca­tions, to in­form Audet that Altice in as­so­ci­a­tion with Rogers Com­mu­ni­ca­tions of Toronto would be of­fer­ing to ac­quire 100 per cent of the Co­geco com­pa­nies in a deal worth $10.3 bil­lion.

At 9:15 a.m. the next day, Altice is­sued a re­lease from New York pub­licly an­nounc­ing the pro­posed takeover and its terms, in­clud­ing the pay­ment of $ 800 mil­lion to the Audet fam­ily for the mul­ti­ple-vot­ing shares through which the Audets con­trol the Co­geco en­ter­prises.

At 9:20 a.m., Rogers is­sued a re­lease con­firm­ing its agree­ment with Altice and out­lin­ing that it would in turn pur­chase all of Co­geco’s Cana­dian as­sets for $4.9 bil­lion, not­ing that “sig­nif­i­cant value” was be­ing re­leased and that Rogers was “ex­cited” about the op­por­tu­nity to ex­pand through its ac­qui­si­tion of 1.8 mil­lion Co­geco cus­tomers.

At 9:43 a.m., the time on a Reuters news re­port, a state­ment is­sued by Louis Audet said that mem­bers of his fam­ily, which through mul­ti­ple-vot­ing shares con­trol Co­geco, “unan­i­mously re­it­er­ated that they are not in­ter­ested in selling their shares.” The state­ment said the fam­ily holds 69 per cent of all vot­ing rights of Co­geco Inc., which in turn con­trols 82.9 per cent of all vot­ing rights of Co­geco Com­mu­ni­ca­tions Inc. The re­lease did not say that the fam­ily’s eco­nomic in­ter­est in the two com­pa­nies is es­ti­mated at 10 per cent and three per cent re­spec­tively.

At 11:24 a.m., Co­geco is­sued a state­ment say­ing it had re­ceived the Altice/rogers takeover pro­pos­als and would sub­mit them to the boards of the two Co­geco com­pa­nies for re­view later in the day. It noted that the Audet fam­ily had al­ready re­jected the deal.

At 6: 38 p. m., Co­geco an­nounced that the in­de­pen­dent mem­bers of the two cor­po­rate boards, after meet­ings and dis­cus­sion with the Audet fam­ily, voted to re­ject the takeover of­fer.

That se­quence of events may or may not have been the swiftest cor­po­rate takeover shoot-down in history, but it cer­tainly marked 24 hours in which sev­eral im­por­tant public pol­icy is­sues were at play.

On board gov­er­nance, Rogers and Co­geco en­gaged in a vi­cious — by cor­po­rate stan­dards — war of words over the Co­geco boards’ de­ci­sion-mak­ing. Rogers and Altice USA wrote to Audet al­leg­ing that their of­fer was re­jected with­out the di­rec­tors “un­der­tak­ing any ap­pro­pri­ate process.” The two Co­geco boards “did not es­tab­lish in­de­pen­dent com­mit­tees that were prop­erly ad­vised.” The boards, they added, failed to ful­fil their most ba­sic du­ties in rep­re­sent­ing the share­hold­ers. “We do not un­der­stand how you … could have be­haved in this un­ac­cept­able man­ner.”

Co­geco re­sponded by ac­cus­ing Rogers et al of mak­ing “un­true state­ments” and en­gag­ing in “bad faith tac­tics.”

A key el­e­ment in this cor­po­rate bat­tle is Que­bec Inc., the decades-old po­lit­i­cal cru­sade to pre­serve the prov­ince’s cor­po­rate in­ter­ests.

On the day the takeover was an­nounced, Que­bec Premier François Le­gault said, “There’s no way (we will let) this Que­bec com­pany move its head­quar­ters to On­tario.” Later, Que­bec’s pen­sion gi­ant, the Caisse de dépôt et place­ment du Québec, said it was ready to back Co­geco. Pierre Karl Péladeau — whose fam­ily con­trols the Que­bec me­dia gi­ant Vidéotron and who once de­scribed Bell Canada as a “public danger” — tweeted out his con­cern about Co­geco’s head of­fice fall­ing into the hands of Rogers.

Péladeau is right to be con­cerned. A Rogers takeover of Co­geco would promise a new wave of com­pe­ti­tion in the Que­bec mar­ket that would di­rectly im­pact Vidéotron. It would also put Rogers deep into Bell ter­ri­tory. But thanks to the gov­er­nance mir­a­cle of mul­ti­ple-vot­ing shares, the Audet fam­ily ap­pears to be mak­ing the de­ci­sions that will kill the com­pet­i­tive op­por­tu­nity.

Com­pe­ti­tion reg­u­la­tors tend to move in when takeovers are al­leged to lead to re­duced com­pe­ti­tion. In the Co­geco case, the ar­gu­ment can cer­tainly be made that al­low­ing Rogers into the Que­bec mar­ket in­creases com­pe­ti­tion. But there is no com­pe­ti­tion pol­icy prece­dent for a reg­u­la­tor in­ter­ven­ing be­cause a com­pe­ti­tion- en­hanc­ing takeover failed due to dual- class share­holder ob­struc­tion.

At the root of the Co­geco prob­lem is the mul­ti­ple-vot­ing shares — or dual-class shares — that are favoured by Cana­dian na­tion­al­ists, fam­ily con­trol ad­vo­cates, and as­sorted the­o­rists who ar­gue that the ben­e­fits are many. In a re­port last year, the In­sti­tute for Gov­er­nance in Pri­vate and Public Or­ga­ni­za­tion out­lined the ben­e­fits, in­clud­ing a ten­ta­tive but far from con­clu­sive claim that cor­po­ra­tions with dual-class share struc­tures may pro­duce su­pe­rior in­vest­ment re­turns. “We find much merit to dual-class com­pa­nies and fam­ily firms, pro­vid­ing hold­ers of shares with in­fe­rior vot­ing rights are well pro­tected” with manda­tory “coat­tail” pro­vi­sions.

But what good are coat­tail pro­vi­sions in the Co­geco case? Un­der coat­tail rules im­posed by se­cu­ri­ties reg­u­la­tors, in any takeover the fi­nan­cial value paid to the mul­ti­ple-vot­ing shares held by a con­trol­ling fam­ily or group must also be paid to the vot­ing share­hold­ers. But what if the mul­ti­ple-vot­ing fam­ily share­hold­ers make the de­ci­sion that kills the takeover? In the Co­geco case, the coat­tail pro­vi­sion is mean­ing­less. There is no coat­tail. It was killed in the first 24 hours of the takeover of­fer.


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