Cogeco family to reject $ 10.3 billion takeover bid including side deal with Rogers

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The family that controls Cogeco Inc. and Cogeco Communications Inc. say it will not support a hostile bid from a New York-based firm that has offered $ 10.3 billion to buy the telecommunications companies.Gestion Audem Inc., a company controlled by members of the Audet family, said on Wednesday that it did not intend to sell its shares and would not support the unsolicited proposal from Altice USA Inc.

The US cable company made the offer in a deal that included a side deal that would see Rogers Communications Inc. buy Cogeco’s Canadian assets for $ 4.9 billion.

Gestion Audem holds 69% of the voting rights of Cogeco and 82.9% of the voting rights of Cogeco Communications. Louis Audet is executive chairman of the companies.

Earlier Wednesday, Altice announced an all-cash offer that included $ 800 million to secure the stakes and voting shares held by Louis Audet and his family.

Altice would pay $ 106.53 per share for the remaining Cogeco Inc. subordinate voting shares and $ 134.22 per share for each Cogeco Communications Inc. subordinate voting share, a premium of approximately 30% on the one-month average weighted by the volume of each share.

Altice also entered into a deal to sell Cogeco’s Canadian assets to Rogers, the Montreal-based company’s largest long-term shareholder, for $ 4.9 billion in cash if Cogeco’s offer is accepted.

“Under the leadership of Mr. Audet, the Audet family and the 4,500 members of the Cogeco team, Cogeco has built an iconic business in Canada and the United States,” said Rogers President and CEO , Joe Natale, in a statement.

“This significant offer reflects the tremendous accomplishments of the Audet family and Cogeco employees. ”

Rogers declined to comment further.

The proposal sent Cogeco Inc. shares up nearly 20% to $ 94.57 in the early afternoon, while Cogeco Communications Inc. shares rose to $ 114.37, an increase of over 15%. Rogers hit $ 54.94, an increase of almost 5%.

Rogers’ 2nd attempt to gain a foothold in the Quebec market

This is the second time that Rogers has been rejected in order to penetrate the Quebec market. Rogers attempted to acquire Videotron in 2000, but the telecommunications company was eventually acquired by Quebecor.

If the deal with Cogeco goes through, Altice would own the company’s US assets, including Atlantic Broadband, a cable operator providing broadband, video and phone services to residential and business customers in 11 US states.

The proposal would also benefit Rogers as it merges Ontario’s cable assets, wrote Aravinda Galappatthige and Matthew Lee, analysts at Canaccord Genuity Corp, in a note to investors.

If the deal goes through, Rogers would pay $ 4.9 billion for the company’s Canadian assets. (JP Moczulski / The Canadian Press)

A successful bid could mitigate the threat from mobile virtual network operators (MVNOs), who buy network capacity from wholesalers instead of managing their own, they said.

Cogeco has long pushed the CRTC to adopt a “hybrid MVNO” model, which would give companies with existing telecommunications infrastructure access to national wireless networks and the ability to resell the service to their customers.

“The hybrid MVNO model relies heavily on the existence of localized wireline companies with the infrastructure and track record to enter the wireless market and then invest in their own networks,” they said.

“Naturally, Cogeco was the obvious choice for this, which could have increased the level of wireless competition in Ontario. Arguably, if a transaction does occur, the threat of a hybrid MVNO is likely to diminish. ”

Galappatthige and Lee say they think the offer made was attractive, but there is room for further negotiations.

They expect Altice and Rogers to be willing to increase their offering and regulatory approval could be obtained.

The reaction becomes political

In an interview with Quebec City radio station FM93 (CJMF), Quebec Premier François Legault rejected the takeover bid. “It is out of the question to let this Quebec company move its head office to Ontario. ”

“We spoke this morning with Louis Audet, we speak regularly with Louis Audet, and we will do whatever it takes to keep the head office here,” he said during the interview.

Pierre Karl Péladeau, president and CEO of Quebecor – a competitor of Rogers – criticized the offer on Twitter, also citing the location of the company’s head office.

Jayme Albert, spokesperson for Canada’s Competition Bureau, said in an email to The Canadian Press that the federal agency was aware of the Altice and Cogeco reports, but could not confirm whether it was reviewing the proposed transaction.

Under the Competition Act, mergers of all sizes and in all sectors of the economy are subject to review by the regulator to determine whether they are likely to result in a substantial lessening or prevention of competition. in a market in Canada, he said.

In general, the office should be notified in advance of proposed transactions when the target’s assets in Canada or sales revenue in or from Canada generated by those assets exceed $ 96 million, and when the assets or Combined Canadian revenues of the parties and their respective affiliates in Canada, to or from more than $ 400 million, he added.

A statement from Cogeco says the non-binding proposal will be submitted and reviewed by the companies’ boards on Wednesday.

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