The Montreal Canadiens’ 1980s hockey rivalry with the Quebec Nordiques was known as the Battle of Quebec. A new battle may be set to begin after BCE Inc. (BCE) agreed to buy Astral Media Inc. (ACM/A), strengthening its footprint in the French-speaking province as it takes on Quebecor Inc. (QBR/B)
BCE’s C$3 billion ($3 billion) cash and stock purchase of Astral gives Canada’s biggest telecommunications company 22 new television channels, including MusiquePlus and Super Ecran, to challenge Montreal-based Quebecor.
The two companies are already locked in a battle over Quebecers’ spending on cable and smartphone subscriptions after Quebecor, which operates the local Videotron cable service and TVA television network, last year began selling smartphones.
The rivalry may intensify on the ice too. Pierre Karl Peladeau, chief executive officer of Quebecor, yesterday vowed to bring a National Hockey League franchise to Quebec City after the Nordiques moved to Denver in 1995. BCE owns a minority stake in the Montreal Canadiens, who play at the Bell Centre, named after the company’s phone business.
“They’re muscling into Quebecor’s market,” said Grant Dawson, managing director of Canadian credit at Manulife Asset Management in Toronto, which owns BCE bonds among the C$16 billion it oversees. “Astral fits well with what Bell is trying to do on content. There really aren’t many media assets of this magnitude that Bell could have bought.”
The deal is BCE CEO George Cope’s third major acquisition since 2010 as he looks to add content that he can sell on smartphones and tablets in what he calls his “four-screen” strategy.
“Does this enhance our competitive position in Quebec? Without a doubt it does,” Cope told analysts on a conference call.
Fight on Quebec Turf
BCE, also based in Montreal, lacked French content other than French sports channel RDS. Buying Astral bolsters that content, said Vice Chairman Martine Turcotte.
“Astral is going to teach us how to be even more competitive in Quebec,” she told reporters in Montreal.
“They’re able to fight on that Quebec turf a little bit better with having more content available,” said Greg Eckel, a fund manager with Morgan Meighen & Associates Ltd. in Toronto that manages about C$1.2 billion and doesn’t own BCE or Astral.
Quebecor yesterday said sales last year climbed 5.2 percent to C$4.21 billion as it added 154,500 data-hungry mobile phone subscribers. The company said it’s adding content to sell to those customers and confirmed it’s agreed to naming rights for 25-years for a future hockey arena in Quebec City.
Tools it Needs
“Quebecor Media now has all the tools it needs to pursue its goals, which are to manage a world-class multipurpose center and to bring a National Hockey League team to Quebec City,” Peladeau said in the statement.
Astral, which has about 2,800 employees, generated net income of C$55.8 million last quarter on sales of C$271.1 million. The class A shares soared 34 percent to C$48.55 at 4 p.m. in Toronto. BCE fell 1.1 percent to $39.64 and Quebecor gained 0.5 percent to C$36.09.
Since 2010, BCE has signed three acquisitions worth $7.6 billion, including debt, according to data compiled by Bloomberg. Astral Media will be the largest cash deal and comes three months after BCE and Rogers Communications Inc. (RCI/B) agreed to buy a controlling stake in Maple Leaf Sports & Entertainment Ltd. (3371Q) in a $1.3 billion deal to add the Toronto Maple Leafs, the most valuable team in the National Hockey League. BCE agreed to buy Canadian broadcaster CTV in 2010 for C$1.3 billion in cash and C$1.7 billion in debt, giving it 30 specialty channels including sports channel TSN.
Ramping up Deals
In his first two years since becoming CEO in mid-2008, Cope focused on cutting jobs and other operating costs and spent less than $500 million on acquisitions, according to the data. Since then he has been ramping up deals to add content as consumer spending on wireless data spending soars. Data revenue at BCE’s Bell Mobility unit jumped 32 percent last quarter from a year earlier, outpacing total sales growth of 10 percent.
Ian Greenberg, president and CEO of Astral, will join the board as part of the agreement. Abgreen Holdings Ltd., the holding company of the Greenberg family, controlled 63.7 percent of Astral Media’s voting shares according to an October filing.
Holders of Astral class A non-voting stock will get C$50 a share, Montreal-based BCE said today in a statement. That’s 38 percent more than yesterday’s closing price. BCE will also assume C$380 million of Astral debt.
“We thought about this for a few months and had several approaches,” Greenberg told analysts. “It was a matter of a getting a deal that made sense for shareholders and our 2,800 employees.”
The deal values Astral at 9.9 times trailing 12-month earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg. That compares with a median of 14.6 times for media takeovers globally worth at least $500 million, the data show.
“Bell was wise to be preemptive and seek this out without an auction process,” said Manulife’s Dawson. “If the market had known that the Astral Media assets had been available, you may have seen an auction.”
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