COGECO COULD SELL DATA CENTRES, BUY OUT ROGERS’ STAKE

Macquarie Research analysts believe it would be an “attractive” strategy for Cogeco Communications Inc. to sell its data centre business and use the cash to buy Rogers Communications Inc.’s stake in its company.

In a note Sunday, analysts calculated Cogeco could maintain its leverage and improve its enterprise value to earnings before interest, tax, depreciation, and amortization ( EBITDA) between 13 and 15 per cent if it sells the data centres to pay for Rogers’ 20-per-cent interest.

Analysts calculated Cogeco could sell its data centre assets for $ 600 million, a multiple of 15 times their EBITDA based on public, comparable companies. It would cost approximately $791 million to buy the Rogers-owned shares based on a $74 price.

The value add is that the higher multiple on the data centre assets would result in a 0.4x multiple pickup that could result in $ 10-$ 11 per share, according to Macquarie’s calculations.

“Investing in its own shares would offer much higher return on investment capital than acquiring a U.S. cable asset,” analyst Greg MacDonald wrote.

Macquarie’s analysis suggests that material scale is necessary to create value in the data centre business, which Cogeco “admits it is no longer growing.”

There’s less than a 50-percent chance this will happen, MacDonald noted, although management did say they would “look at the idea” in a conference call last week.

“At the current valuation it’s a free option anyway,” he wrote.