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Quebecor looks to buy back equity after profit surge

The offices of Quebecor are seen in Montreal in this file photo.

Christinne Muschi/The Globe and Mail

With its balance sheet fortified by two recent wireless-licence sales, Quebecor Inc. is getting ready to spend.

The Montreal-based cable and wireless company plans to use a cash infusion of "close to $615-million" from the sale of spectrum to Shaw Communications Inc. and Rogers Communications Inc. to buy back equity in its operating company and invest in the launch of a new Internet-based television product.

Chief executive officer Pierre Karl Péladeau said Thursday that he is "very satisfied" with the outcome of the sale process as he pointed to the company's spending priorities.

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"Our healthy balance sheet can currently support sound investment projects, such as the full buyback of our partner's [interest] or the investment to come in an IPTV program," he said after Quebecor reported a surge in second-quarter profit, which rose to $132.4-million, or $1.09 per share, up from $9.8-million last year.

Quebecor has long had a goal to repurchase all of the interest the Caisse de dépôt et placement du Québec holds in Quebecor Media Inc., the company's main operating unit. Analysts estimate the Caisse's remaining 18.7-per-cent stake in QMI is worth in the range of $1.7-billion and there is great interest in when the company will buy back the balance and eliminate the holding company discount some investors attribute to the stock. In early July, the company paid $38-million to purchase and cancel about 540,000 QMI shares from the pension fund giant.

"Our priority would be to make a transaction with la Caisse – we said this for the last 10 years – our goal, our promise was to be a full 100-per-cent shareholder of Quebecor Media," Mr. Péladeau said.

He added that investing in an IPTV (Internet protocol television) platform for Quebecor's cable business – which will allow it to better compete with rival BCE Inc.'s TV product – is also "certainly a top priority."

Other Canadian cable companies have already moved to Internet-based platforms or announced plans to do so, moves seen as necessary to give customers more advanced features that telephone company competitors are already offering through IPTV. Shaw licensed technology from U.S. cable giant Comcast Corp. and launched a new TV product in January while Rogers said last year it was scrapping an in-house program to build IPTV and would also launch a Comcast-powered product in 2018.

Investors have been waiting for Quebecor to reveal its own strategy for some time. Mr. Péladeau would only say Thursday that the company would make an announcement regarding IPTV "in due time … it should not be so long."

The Quebecor CEO also said Thursday he welcomed a proposed framework the federal government released last week on a coming auction of wireless spectrum in the 600-megahertz frequency. The rules, if finalized, would allow small wireless players such as Quebecor and Shaw's Freedom Mobile to bid on about 40 per cent of the airwaves in their operating territories without competition from the national players. "I also want to assure [Innovation] Minister [Navdeep] Bains and his team that we intend to actively participate in the public consultation" on the auction, he said.

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Quebecor said its second-quarter profit was boosted by an $87.8-million gain from the sale of spectrum to Rogers (after factoring in what Quebecor originally paid for the licences). That deal, worth a total of $184.2-million, closed in June, while the second transaction to sell licences to Shaw for $430-million closed in July, boosting Quebecor's total cash proceeds on spectrum sales to $614.2-million. A further gain of $243-million for the second sale will be recognized in Quebecor's third-quarter results, the company said.

Analysts said both financial and subscriber numbers for the second quarter either matched or exceeded expectations for the quarter and the company's stock was up sharply Thursday, gaining 4.3 per cent to close at $45.20 on the Toronto Stock Exchange.

The company's adjusted income in the second quarter was $83.2-million or 69 cents per share, beating analyst estimates of 64 cents per share.

Quebecor also beat projections on revenue and EBITDA, reporting $1.03-billion and $395-million, respectively (EBITDA means earnings before interest, taxes, depreciation and amortization).

Videotron Ltd., Quebecor's cable and wireless business, attracted 32,000 new mobile customers in the period, also ahead of expectations. Meanwhile, it lost fewer Internet and television customers – down 1,000 and 24,000, respectively – than it did last year during the traditional moving season in Quebec, when many subscribers cut off service.

While much smaller than the telecom business, its media division also posted strong results. That was largely owing to its television broadcast business, which reported higher ratings during the National Hockey League playoffs as well as an increase in advertising sales.

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About the Author
Telecom Reporter

Christine Dobby covers the Canadian telecom industry for The Globe and Mail. Before joining the Globe in May 2014 she reported for the Financial Post for three years, most recently writing about telecom and media. She has also reported for the Toronto Star and New Brunswick Telegraph-Journal. More

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