Cogeco Inc. CEO Louis Audet has long ruled out a sale of his company, least of all to Rogers Communications Inc., which has long coveted its cable assets and owns a substantial minority stake in the stock. Two recent events suggest that position could change.
First is the passing of his father Henri Audet in November, at age 94. The second is an asset swap earlier this week that saw ownership of Hamilton-area cable firm Mountain Cablevision Ltd. pass to Rogers from Shaw Communications.
We don't know what the late Mr. Audet's will stipulates, but we do know that he owned 91 per cent of the family holding company, Gestion Audem Inc., which in turn owned multiple voting shares that gave it 72 per cent voting control of Cogeco Inc. (Cogeco Inc. controls publicly traded Cogeco Cable Inc., which is the main operating subsidiary.) We can assume the beneficiaries are his wife and five children, of whom only two, Louis and brother François, are active in the company's senior management.
We also know that the pattern in Canada has typically been for independent, family-controlled media and telecommunications companies to change hands after the handover from founder to next generation. The Audet family owns 2.75 million Cogeco Inc. shares, which yielded $2-million in dividends in the past year. Split five or six ways, some family members could feel they're earning a pittance from the family asset compared to brother Louis, whose compensation averaged more than $3-million in the last three years.
Further adding to that kitchen table debate would be the huge premium they could expect for their stock: one analyst suggested Rogers would be willing to pay roughly $80 a share – which would value the Audet family stake at $220-million. Split that five or six ways, and you can see why other families have chosen to sell out.
The Audets have resisted entreaties, but continued unity will depend upon the CEO's ability to create – or at least preserve – value. His track record on that front has not been great: His $660-million purchase of a Portuguese cable firm in 2006 was a near-complete wipeout. More recent deals, including last year's purchase of a modest cable system in the U.S. and investments in data services, suggest the company is lacking for focus and strategy.
That's where the Rogers transaction comes into consideration. Cogeco's golden goose for years has been its cable operations in Ontario, and particularly those in the growing, affluent communities of Oakville, Burlington and Milton. Until now, it has had those markets to itself. But in the late 2000s, Rogers sought and received regulatory approval to expand there, as well as in Aurora, Ont.. The owner of a private cable company in Aurora got the hint and quickly sold out to Rogers, while Cogeco held firm.
Make no mistake: Rogers has a massive strategic interest in locking up all of Southern Ontario. It would gain huge synergies in everything from marketing to operations and be able to more effectively compete with archrival Bell for "quadruple play" customers – those with broadcast-TV, Internet, telephone and wireless accounts.
Now, with Rogers owning cable markets on all three sides of those Hamilton-to-Toronto communities in the Cogeco portfolio – which together represent an estimated 20 to 25 per cent of Cogeco's total customer base in Canada – don't be surprised to see Rogers offer a fresh set of choices to the Audets: sell out for a princely sum and create value for everyone – or risk a value-destroying dogfight for customers.
For now Rogers says moving into Cogeco territory is not part of its business plan. But it's just a matter of time before it will be. Before that happens, Cogeco shareholders can only hope the CEO sees the same value-creation opportunity that they do, and starts negotiating.