A Quebecor Inc. sign is shown in this file photo.Graham Hughes/The Canadian Press
Following a pair of lucrative spectrum licence sales, Quebecor Inc. is making another move to acquire some of the interest it still doesn't own in its main operating subsidiary.
The company said Thursday it has reached a deal with the Caisse de dépôt et placement du Québec to purchase and cancel about 540,000 Quebecor Media Inc. shares the pension fund owns for proceeds of $38-million.
After the transaction, the Caisse will still own 18.7 per cent of the subsidiary, down just slightly from 18.9 per cent. It's a smaller deal than the last time Quebecor bought back some of the Caisse's interest in September, 2015, when it struck a $500-million deal to reduce the pension fund's stake from 25 per cent.
But it comes within weeks of Quebecor announcing two sales of wireless spectrum licences worth a total of more than $600-million, money analysts predicted the company would begin to spend on buying back shares from the Caisse.
The pension fund acquired its interest in 2000, when it helped fund the $5.5-billion acquisition of the cable company Videotron, which has since become Quebecor's main source of revenue and growth.
Quebecor has long said it does plan to eventually own all of Quebecor Media but it has taken its time to negotiate purchases from the Caisse as it keeps an eye on its debt leverage. That was particularly important as the company considered expanding its mobile business across Canada, but it has now abandoned those potentially expensive plans and sold its licences for wireless airwaves outside Quebec.
Analysts estimated the two spectrum sales – of $184-million to Rogers Communications Inc. and $430-million to Shaw Communications Inc. – will reduce Quebecor's debt to EBITDA ratio by 0.4 points to 3.0 times when both deals close (EBITDA means earnings before interest, taxes, depreciation and amortization).
Quebecor also has outstanding convertible debentures to buy back. Desjardins Securities analyst Maher Yaghi says if the company does both that and acquires all of the Caisse's interest in the operating company, he estimates it "could unlock around $3 per share," reducing the holding company discount assigned to the stock.
Thursday's deal only gets Quebecor a bit closer to its goal of owning 100 per cent of its subsidiary – Canaccord Genuity analyst Aravinda Galappatthige estimates it will cost the company about $1.7-billion to buy the Caisse's remaining share back.
Quebecor has until 2019 to repurchase the balance of the Caisse's interest, spin off Quebecor Media through an initial public offering, or sell the shares to another large investor.
It said in a brief statement Thursday that the current deal was "provided for" in the 2015 agreement with the Caisse. Canaccord's Mr. Galappatthige wrote in a note to clients that he believes the share purchase was "an option... tied to the non-core spectrum sale to Rogers."