Rogers offers to buy Cogeco — what it means

Today, we learned Canada’s already concentrated telecom/media industry could soon become even more concentrated: Rogers has teamed up with American cable company Altice USA to make an unsolicited $10.3-billion offer for all of Cogeco’s assets. As part of the deal, Altice would take over Cogeco’s U.S. assets (Atlantic Broadband) and Rogers would take over the Canadian assets (Cogeco Connexion and Cogeco Media) for a net purchase price of $4.9 billion.

Rogers already owns a significant part of the two companies that make up Cogeco, via subordinate voting shares (41% of Cogeco Inc. and 33% of Cogeco Communications).

But both companies are controlled by the Audet family — Henri Audet founded the company more than 60 years ago — and the family has announced that it will not support the bid. Meanwhile, Quebec premier François Legault says he will do whatever is in his power to prevent Quebec from losing another corporate headquarters. But it’s unclear what powers he would have in this case. (Rogers responded by saying it “reaffirmed its commitment to expand and grow its presence in Quebec,” comparing Cogeco to Fido, which is still “headquartered” in Montreal, something at least one expert called BS on.)

Remember Videotron?

If Quebec does decide to step in somehow, this would make the second time it has intervened in a sale of a major cable company to Rogers. In 2000, Rogers came to an agreement to buy Videotron from the Chagnon family. But for similar reasons, the government stepped in and the Caisse de dépôt partnered with Quebecor to present a competing bid that was eventually accepted.

That deal had significant consequences for the media and telecom sphere in Quebec. Videotron became Quebecor’s main source of income as legacy media outlets faded, and now Videotron and Rogers compete for wireless customers, giving Quebec lower wireless rates than other large provinces.

Without Videotron, it’s clear that Quebecor would not be the same company it is now. Not only would it not own the cable company, but it wouldn’t have owned TVA either, since TVA was owned by Videotron at the time. Quebecor would have kept TQS, and either invested enough to improve it or seen it decline along with its other media assets.

(TQS was sold to a partnership between Cogeco and Bell, with Cogeco having the controlling interest. It eventually went bankrupt, was sold to Remstar, and just recently sold again to Bell.)

The Caisse/Quebecor deal didn’t work out so great for the public pension fund. Various analyses of the deal have shown that while the Caisse made money over the years, it would have done much better just putting it into the market.

Will it happen?

If Quebec doesn’t decide to step in (or does something like accept the deal if Rogers keeps some nominal headquarters for Quebec operations in Montreal), then it’s up to the Audet family.

Their deal was submitted to the boards, but the boards quickly rejected the deal as well. Altice responded that it is still pursuing a deal, but the Audet family said point blank “our shares are not for sale” and “our refusal is not a negotiating position, it is definitive.” Altice and Rogers Rogers say they’re playing the long game.

Competition concerns

If the deal is eventually accepted by shareholders, then the CRTC and Competition Bureau will look at it (or at least the Canadian part of it). The bureau looks at competition concerns from an economic perspective — will this deal in some way reduce competition? — while the CRTC considers other factors like diversity of voices.

From a media concentration standpoint, it’s worrisome that another medium-sized player will get scooped up by a large one. Over the past few years we’ve seen Astral Media, MTS and V get bought by Bell, most RNC Media radio stations bought by Cogeco, Public Mobile bought by Telus, Groupe Serdy bought by Quebecor, and a bunch of other smaller transactions.

But Rogers and Cogeco don’t really compete directly in anything. As cable companies, they each have their own territories, and though they may operate in the same regions (like southern Ontario), they don’t overlap. Rogers doesn’t own any radio stations in Quebec, and the only market where both companies operate is Ottawa/Gatineau, where Cogeco has 104,7fm and Rogers has CHEZ 106, Kiss 105.3 and 1310 News. Because they operate in different languages, they are considered part of different markets.

Cogeco had been looking to enter the wireless services market, to offer a bundle option to its cable subscribers. It was waiting on the CRTC to offer better conditions for virtual mobile network operators, which it hasn’t done yet. If Rogers buys Cogeco, the issue becomes moot, and Cogeco’s spectrum simply gets added to Rogers’s services.

Size

According to CRTC data, as of Aug. 31, 2019, the largest companies had the following Canadian television subscribers:

  • Bell 2,820,284
  • Shaw 2,081,536*
  • Rogers 1,606,213
  • Videotron 1,440,097
  • Telus 1,127,676
  • Cogeco 627,608*

*Updated figure from last quarterly report.

Rogers and Cogeco combined would have about 2.2 million subscribers, making it the #2 television provider in Canada behind Bell.

Rogers owns 54 radio stations and Cogeco owns 23. Combined, they would have 77 radio stations, which is just above Stingray’s 74 (it claims to own more than 100 stations, but that includes a lot of retransmitters), and would be #2 in Canada behind Bell’s 109 in terms of number of stations

Rogers is already the #2 radio broadcaster in Canada in terms of annual revenue (figures from 2018-19 reports to CRTC, percentages based on latest Communications Monitoring Report):

  1. Bell: $347 million (25%)
  2. Rogers: $226 million (15%)
  3. Stingray: $152 million (10%)
  4. Corus: $109 million (8%)
  5. Cogeco: $96 million (7%)

If the deal goes through, 45% of all Canadian commercial radio revenue would be controlled by two companies, and 65% by the top four. As we learned from the Bell/Astral acquisition (which created a larger company than Rogers/Cogeco would), the CRTC doesn’t consider national market power in radio acquisitions, just number of stations in individual markets.

Since it got rid of TQS, Cogeco doesn’t own any television assets beyond the community channels associated with its cable companies. It also doesn’t own any newspapers or magazines (and since Rogers sold its remaining magazines to St. Joseph Communications, neither does it).

7 thoughts on “Rogers offers to buy Cogeco — what it means

  1. Eamon Hoey

    Ontario has considerable interest in this transaction. Cogeco derives much of its cable revenues within Ontario as does La Caisse. Doug Ford may be less conciliatory towards Quebec than was John Robarts and Bill Davis. Ford might have a different view of the acquisition of Cogeco by Rogers. He might not appreciate Quebec’s interference in an Ontario driven business acquisition.. Ontario still remembers “l’affaire Steinber’s”, the sale of National Cable and lately Videotron. There is a different mood in Ontario. Legault needs to carefully weight the interest of Quebec vs those of Ontario. Ontario could suddenly find its own brand of nationalism in the same manner as did Quebec in the SNC matter. it is not clear that Quebec can always have its way. Of course that is just one dimension of the issue. Quebec has lost considerable political power since 1960’s a trend that will continue. It is a declining Province economically and politically. This is a game it will likely loose if Ontario chooses to support a good old Conservative Family.

    Reply
  2. Dilbert

    Rogers has a very small footprint in Quebec right now, essentially nothing. Cogeco and Rogers have little to no overlap in services or stations, so the CRTC would have little to drive any real objections. Perhaps the only question might be the lack of synergy as Rogers does not have much in the way of Francophone stations or services.

    On that point, Rogers could very well be in the game for the cable systems. Both TV delivery and internet services are big dollar items, and things that Rogers is very experienced in. Throw in the wireless market and access to a whole bunch new potential bundled customers, and they will be happy.

    So it would bring up the question: Would Rogers want to really be in the franco radio market, or would they perhaps start to horse trade them to get anglo stations that they are more comfortable with? Might a company like Bell be willing to part with say a station like Virgin in Montreal in return for a bunch of franco stations in other markets that they can add to their existing networks? Rogers not being in the Montreal anglo radio market is a big miss for them.

    Reply
    1. Fagstein Post author

      So it would bring up the question: Would Rogers want to really be in the franco radio market, or would they perhaps start to horse trade them to get anglo stations that they are more comfortable with?

      I can’t think of a party that Rogers would sell Cogeco Media to that owns English-language stations it would be interested in trading for. This isn’t just a few French-language stations here — Rogers would be buying an entire media company that includes some of Quebec’s most popular radio stations. It would instantly become the #1 radio broadcaster in the largest market in Quebec. I don’t see why it would be desperate to offload that. Rogers doesn’t have much experience in French radio, but Cogeco Media definitely does, and Rogers would be buying that.

      Reply
      1. Dilbert

        I think you only have to look at Corus to understand that even the biggest Canadian media companies aren’t exactly comfortable running Franco Quebec operations. In fact, the possible deal here today is an end result of Corus tucking it’s corporate tail between it’s legs and beating a retreat back to it’s Anglo base.

        The real question is what assets and what markets Rogers really wants, and what is extra and additional to the discussion. They may be looking at the 600,000 cable subscribers as a big boost to their existing 2.5 million or so subs, and may feel on a technology level that they can extract more bottom line profits from the Cogeco systems. They may also look at it as a way to better access these consumers for selling wireless services.

        Everyone knows that radio (and local TV, for that matter) are high dollar, low return businesses. Rogers may not consider them to be the biggest part of any deal they make.

        Reply
  3. Anonymous

    If Altice is really only interested in Cogeco’s US assets, then just sell them that.
    With that money, Cogeco can then buy out Roger’s share of Cogeco.

    My concern is really in having another mega communications company like Bell.
    It’ll be another slash and burn situation after the transaction is allowed to go through.

    Reply
    1. Fagstein Post author

      If Altice is really only interested in Cogeco’s US assets, then just sell them that. With that money, Cogeco can then buy out Rogers’ share of Cogeco.

      That’s a possible outcome, if (1) the Audet family is willing to sell Atlantic Broadband, and (2) Rogers is willing to sell its shares in Cogeco. Neither of those is a given.

      Reply
  4. Brian Smitherson

    I am nor have ever been a Cogeco customer but having talked to friends and their neighbours in Kingston Ontario they are not too happy that they only place they can get cable TV from are two Quebec companies, Cogeco or Bell. They also mention the horrible service form Cogeco. I think Quebecois need to realize the distrust Canadians have of Quebec. The ROC does not like Quebec especially our politicians.

    As an aside, say I was a shareholder of Cogeco and would like to take advantage of this offer. If it is somehow vetoed by Legault, can I then sue Quebec for commercial interference or depriving me of income?

    Reply

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