Note: This article was originally written on September 3, 2020

The set-up

  • Altice USA’s proposal to buy tightly-held Cogeco yesterday, which would involve selling to Rogers the Canadian assets, was denied by the controlling Audet family before anyone could really comprehend what was going on
  • According to Rogers, Altice approached it about the proposal, but could not say when or for how long they discussed it and whether they presented the — or another — offer to the Cogeco kingpins privately before going public
  • Going public with the offer drove Rogers’s share price up temporarily to its highest level since April, which was less than a month after a pandemic was declared, and bumped Altice’s own shares to its highest level since the beginning of the year (Yahoo)

The angle

  • The blockbuster proposal preceded news today that saw Rogers announce it will buy small Fenelon Falls, Ontario-based rural broadband provider Cable Cable, as first reported by Cartt.ca
  • The deal follows others during the pandemic, including Telus’s purchase in May of A.B.C. Communications, which has already been approved for government funds to build in rural British Columbia; Cogeco’s purchase of rural telecom operator iTéract in April; and Xplornet’s purchase of fibre owner F6 Networks this week
  • It’s unclear whether the pandemic pushed any of these companies over the edge; much less known is whether the companies were already on the radar screens of the bigger telecoms and the pandemic served the perfect opportunity to snatch them up
  • There have been at least three telecom-related companies that have gone insolvent since the pandemic, according to public records: Toronto-based Frontline Broadband, which sells telecom services under the name Rally; Mississauga-based WireIE, which builds telecom networks for underserved areas; and Vancouver-based Roam Mobility, which sells prepaid U.S. SIM cards for travelers

What the experts are saying

  • Lawrence Surtees, research vice-president of communications at market research firm IDC, said in an interview that these types of deals — particularly private equity companies seeking a relatively stable asset in telecommunications — “will probably intensify in 2020, and will certainly continue even despite Covid. In fact Covid may, in some ways, make those types of deals a bit more attractive” in part because companies may seek to sell non-core assets to focus on core competencies as the pandemic stings balance sheets
  • For example, in June, Bell sold a slate of data centre facilities to Equinix worth roughly $1 billion to focus on its network and presumably the upcoming 3.5 Ghz spectrum auction later this year
  • Cogeco, for its part, has so far been managing the pandemic fine; it also had an extra $720 million from last year’s sale of its Peer 1 data centre business
  • Before Covid was declared a pandemic, in February, rural internet provider Xplornet announced an agreement to sell to New York-based private equity firm Stonepeak Infrastructure, a deal which was finalized in June
  • “In any time of financial turmoil companies that have steady reliable cash flows are in a great position to use their strength and higher stock multiples to buy weaker, less valued companies,” Iain Grant, an analyst at Seaboard Group, said. “Happily for the Canadian telecom industry Elon Musk hasn’t expressed an appetite.”

Counter-point

  • Duncan Stewart of Deloitte, however, said he doesn’t think it’s the pandemic “specifically” that is driving M&A action: “Prior to today’s market action, many companies have strong valuations and balance sheets. Interest rates are low,” he said. “Those are ALWAYS preconditions for strong M&A activity,” he added. “The pandemic happens to coincide with strong M&A. It isn’t causing it.”

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