Cogeco shrugs off Rogers's new offer in bid for assets

Proposed $3B investment in Quebec not enough to convince board, shareholders

Rogers Communications Inc. says it will spend $3 billion in Quebec over the next five years if it emerges victorious in its bid for the Canadian assets of Cogeco Inc., but the Montréal-based cable company and takeover target remains unswayed.

Toronto-based Rogers and U.S. cable operator Altice USA Inc. announced earlier this month that the latter was willing to pay $10.3 billion for Cogeco and its subsidiary, Cogeco Communications Inc. As part of the deal, Altice would then flip Cogeco's Canadian assets to Rogers for $3.4 billion.

However, the offer was quickly rejected by Cogeco's board of directors and its controlling shareholders, the Quebec-based Audet family. Some hard feelings have since emerged, as both sides of the transaction have sent a letter accusing the other of various failings in their dealings.

Rogers now says the acquisition would come with more than just cash for Cogeco shareholders, as the telecom giant is proposing to spend a total of $3 billion in Quebec over the next five years, including $1.5 billion in network investments. Also included is a commitment to keep 5,000 jobs in Quebec for the combined company (Rogers currently says it has 3,000 Quebec employees) and a vow to keep Cogeco's headquarters in Montréal.

Other carrots offered by Rogers is a pledge to bring next-generation 5G cellular network coverage to 95 per cent of Quebec's population over the next five years and a vow to set up a “tech innovation hub” in the province that would create up to 300 jobs.

“We understand the importance of reaffirming our strong commitment to Quebec,” said Joe Natale, president and chief executive of Rogers, in a press release. “Rogers stands ready to be Quebec's partner in building world-class networks to help make it a global leader in technology and innovation.”

Cogeco, though, was unmoved by the latest proposal.

“Rogers may continue making all the investments it wishes in Quebec but it doesn't need Cogeco to do so,” the company said in a statement to the Financial Post. “If Rogers fails to invest, their competitors will take away its mobile customers, regardless of 5G. As far as Cogeco is concerned, the company remains focused on executing its profitable growth strategy, investing in its state-ofthe-art broadband networks and offering leading edge services to its customers.”

The proposal from Rogers and Altice would see the latter keep Cogeco-owned Atlantic Broadband, the ninth-largest cable operator in the U.S. Cogeco Communications also provides internet, TV and telephone services in Quebec and Ontario via its Cogeco Connexion brand. Cogeco has a media subsidiary as well, which owns and operates more than 20 radio stations in Quebec.

Rogers says it has invested more than $2 billion into its Quebec wireless network over the past decade, has almost two million customers in the province and has introduced next-generation 5G cellular technology in Montreal, Quebec City, Gatineau and Trois Rivières.

Yet the latest exchange between the two sides leaves the deal, at least publicly, at its pre-existing impasse.

Gestion Audem Inc., a company controlled by the Audet family, holds 69 per cent of the voting rights in Cogeco, which has nearly 83 per cent of the voting rights of Cogeco Communications.

Rogers, meanwhile, is Cogeco's biggest shareholder, but it lacks control because of Cogeco's dual share structure. Rogers owns approximately 41 per cent of Cogeco's outstanding subordinate voting shares and 33 per cent of those of Cogeco Communications.

National Bank Financial analyst Adam Shine wrote in a report on Friday that Rogers's investments in Cogeco amount to approximately $1.65 billion.

“Unfortunately, there doesn't seem to be a dance partner to make this proposal or a higher offer work,” Shine wrote.