Cogeco on the hunt for acquisitions after rebuffing takeover overture

·4 min read

TORONTO — Cogeco Inc. has the financial resources to do more acquisitions and service improvements profitably as an independent company, chief executive Phlippe Jette said Thursday.

Jette's remarks at the beginning of Cogeco's fourth-quarter call with analysts followed two recent hostile takeover attempts from New York-based Altice USA Inc., which was working with Rogers Communications Inc. toward a deal that would have seen Cogeco's Canadian assets sold to Rogers.

The latest, sweetened Altice offer of $11.1 billion for the Montreal-based company values the Rogers stake at $5.2 billion.

But because Louis Audet and his family control 69 per cent of voting rights at Cogeco Inc., which in turn controls 82.9 per cent of Cogeco Communications Inc.'s voting rights, it can block the deal with Altice. Audet has said the company is not for sale.

In response to an analyst's query as to whether the Cogeco board has "any sense of urgency" that some action is needed to "surface shareholder value" by boosting its stock price, Jette said "we will stay focused on what matters and what matters is growing our business and improving our service."

Cogeco chief financial officer Patrice Ouimet added that the company would consider share buybacks, a common move for publicly traded companies that tends to push up prices. 

But Ouimet said Cogeco also wants to be able to make more acquisitions and could handle multiple small deals, or a major one for as much as US$1 billion if an opportunity arises.

Pressed further by analysts, Jette said Cogeco might be willing to buy a large block of its own shares "but we'll have to see if it does become available at one point."

Rogers CEO Joe Natale has declined to say what its next moves would be if the Altice offer expires as scheduled on Nov. 18. 

However, Natale told an industry conference on Sept. 15 that the Toronto-based company is looking at its medium- and long-term investments in every province, including Quebec. Despite Rogers' size, the telecom company has a relatively small cable and internet presence in the province.

"We're asking a very fundamental question. Do our plans include Cogeco territory or not?'' Natale said at a virtual conference hosted by BMO Capital Markets.

Cogeco has the second-largest cable system in Ontario and Quebec, in terms of cable subscribers. On a national scale, it's No. 4 after Rogers (in Ontario and Atlantic Canada), Shaw (in Western Canada) and Quebecor-owned Videotron, which operates mostly in Quebec.

Cogeco Communications announced last week that it has entered into a deal to buy DERYtelecom, Quebec's No. 3 cable and internet company by subscribers, for $405 million.

That deal is expected to close before the end of 2020.

Earlier Wednesday, Cogeco Communications and its parent company raised their dividends by about 10 per cent, as they've done in previous years, and provided an outlook for fiscal 2021, which began Sept. 1.

Cogeco said it expects revenue for fiscal 2021 will rise by "low single digit'' percentages above 2020. 

It expects adjusted EBITDA, a measure of profitability, to be constant and single-digit growth in free cash flow — which affects how much a company has available to spend on capital investments and dividends. 

Cogeco said it would update its outlook after the DERYtelecom deal closes.

Cogeco Inc. said its cable and internet operations fared well during the summer months in both Canada and the United States but its Quebec-focused media business continued to experience low ad revenue due to the pandemic's impact.

The company reported a net profit of $30.7 million or $1.92 per diluted share for the quarter ended Aug. 31, down from $31.4 million or $1.93 per diluted share a year ago.

Cogeco Inc.'s revenue in the quarter totalled $624.2 million, up from $610.5 million. 

Cogeco Communications earned $90.8 million or $1.88 per diluted share on $605.2 million in revenue for the quarter ended Aug. 31. The result was up from a profit of $89.8 million or $1.80 per diluted share on $583.7 million in revenue in the same period a year earlier.

This report by The Canadian Press was first published Oct. 28, 2020.

Companies in this story: (TSX:CCA, TSX:CGO, TSX:RCI. B)

David Paddon, The Canadian Press