Quebecor Inc. (QBR/B) agreed to pay C$1.5 billion ($1.5 billion) to Canada’s second-biggest pension fund manager to increase its control of media and wireless assets in French-speaking Quebec, where it competes with BCE Inc. (BCE)
Quebecor Media Inc. will buy about 20.4 million of its own shares held by the Caisse de Depot et Placement du Quebec for about C$1 billion. Montreal-based Quebecor will also purchase 10.2 million shares of Quebecor Media held by the pension fund for about C$500 million, according to a statement today. The transaction will lift Quebecor’s stake in Quebecor Media to 75.4 percent from 54.7 percent. The Caisse’s stake will be cut to 24.6 percent from 45.3 percent.
“Our intention was to take advantage of the window of opportunity created by the favorable conditions on the debt markets to increase our interest in Quebecor Media,” Pierre Karl Peladeau, chief executive officer of Quebecor and Quebecor Media, said in the statement.
Increasing its stake in Quebecor Media gives Quebecor greater control over 43 daily newspapers, the cable-television and wireless business Videotron, broadcaster TVA, and the Canoe portal of English- and French-language Internet sites. That gives it more ammunition against BCE, also based in Montreal, which has spent almost C$8 billion in cash and debt over the past two years buying media assets.
Still, the deal raises question about why Caisse de Depot is selling now, said Maher Yaghi, an analyst at Desjardins Securities Inc. in Montreal.
“This could create negative sentiment, and we suspect the stock could be under pressure until management addresses this issue,” said Yaghi, who has a buy rating on Quebecor.
Quebecor fell 1.3 percent to C$33 at the Toronto close. The stock has fallen 5.4 percent this year.
Asked why the two sides struck a deal now, Peladeau told analysts on a conference call that “the proper conditions were available” for the companies to achieve their objectives.cn bn
The transaction will lift Quebecor Media debt-to-earnings ratio to 3.7 from 2.9, according to Desjardins’s Yaghi. That is a “comfortable” level, given it stood at 3.8 in 2008, he said.
Quebecor Media’s cash flow should allow it to lessen its debt burden over time, company executives said on the conference call. The company doesn’t expect Quebecor’s Media dividend to increase in the short term.
The Caisse, which had C$166 billion in assets at the end of June, said it still has a stake in Quebecor Media because of the company’s “potential to create value.” The pension fund ranks behind Canada Pension Plan Investment Board, based on half-year results disclosed in August.
“The conditions are right to rebalance our portfolio by divesting a part of the major position we held in the media and telecom sector,” Caisse President and CEO Michael Sabia said in the statement. The Caisse bylaws prohibit the pension-fund manager from owning more than 30 percent of a company, though an article in those regulations provides for temporary exemptions.
The Caisse is locked in to its Quebecor Media investment until Jan. 1, 2019, when it can sell the shares in an initial public offering, according to today’s statement. Quebecor executives said they could block an IPO by buying up the shares and giving it 100 percent ownership.
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