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Cogeco sells Portuguese subsidiary Cabovisao

Cogeco Cable Inc. President and CEO Louis Audet addresses the Montreal-based cable and internet company's 2004 annual general meeting.

J.P. Moczulski/CP

Louis Audet's European adventure is over.

After enduring years of criticism, Cogeco Cable Inc. is bidding farewell to Portugal and firmly closing the door on European expansion.

The Montreal-based telecommunications company has sold its struggling Portuguese subsidiary, Cabovisao – Televisao por Cabo SA, to European Group ALTICE for €45-million ($59.3-million).

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While widely anticipated for months, the sale marks the end of a difficult saga for Cogeco and its chief executive officer, who had dreamed of a bigger European footprint.

As Portugal's second-largest cable provider, Cabovisao was supposed to be a landmark purchase for Cogeco, paving the way for more European deals. Instead, Cabovisao failed to live up to its billing and the continent's debt crisis snuffed out what remained of Cogeco's European dream.

Now, Mr. Audet is seeking to assure shareholders that Cogeco is squarely focused on Canada – a strategy many investors said the company should have followed from the beginning.

"We don't have intentions to acquire new companies in Europe and we are rather focused on what we have been doing – in fact, we've been buying in Canada," Mr. Audet said in a telephone interview Wednesday.

Since 2008, Mr. Audet has been beefing up the Canadian presence of the cable company and its parent, Cogeco Inc., by acquiring assets such as Corus Entertainment Inc.'s Quebec radio stations and Métromédia CMR Plus Inc. At least one analyst speculated that Cogeco could use the sale proceeds to bolster its business communications subsidiary.

Cogeco, though, has no plans to use money from Cabovisao's sale to pay foracquisitions.

"I think what we'll do with this amount of money is reduce the debt," Mr. Audet said. The company's debt stood at roughly $1-billion at end of the first quarter, which ended Nov. 30, 2011. (Cogeco's second quarter ended Wednesday and the company will release its financial results in April.)

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Still, for some shareholders, the writing was on the wall years ago concerning Cabovisao. It previous owner, Cable Satisfaction International Inc., had filed for protection from creditors in 2003.

As a result, when Cogeco acquired Cabovisao for $660-million in 2006, the deal proved controversial from the start. In fact, the very day the deal was announced, Cogeco's stock plunged 17 per cent as investors worried that the Portuguese cable provider would sidetrack executives and become a drag on the company's earnings.

Since that time, Cabovisão has struggled with subscriber growth and its woes have been aggravated by Portugal's flagging economy.

The global recession and subsequent European debt crisis have caused consumers to slash their household spending as they grapple with high unemployment and rising taxes. At the same time, Cabovisao has faced sharper competition from rivals, which slashed prices to retain market share.

During the third-quarter of 2011, Cogeco Cable completely wrote off its net investment in Cabovisao, which resulted in a $56.7-million loss for the period.

"We believe the market attributed very little value to Portugal," wrote Scotia Capital analyst Jeff Fan, adding the nearly $60-million sale price works out to roughly $1.20 per share. "This is immediately positive to [Cogeco's]share price."

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When asked whether he had any regrets, Mr. Audet said much of what transpired over the past two years was beyond his control.

"When we did this acquisition we might have been criticized, but we did exceeding well in the first two years," he said. "I think exiting Portugal at this price, at this time, is beneficial for our shareholders."

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