Altice USA showed up at Cogeco’s door over the weekend, bearing a sweetened offer that was soundly rejected for a second time by the Canadian telco’s controlling shareholders. And while Gestion Audem, the family trust that controls 69% of Cogeco’s vote, effectively swatted away Altice’s offer of more candy and bigger flowers, there are those that believe that the latest bid may not have been aimed at them after all. 

Gestion Audem, the trust headed by the telco’s executive chairman Louis Audet, wasted little time in firing off a rejection of the latest Altice USA bid for the company, which at $8.4 billion  represented an 8% increase to its Sept. 2 offer. In a tersely worded statement, Luis Audet basically asked Altice USA what part of “No,” does it not understand?

Audet referenced Gestion Audem’s earlier rejection of Altice USA’s offer in its statement, adding: "Since this is apparently not registering with Rogers and Altice, we repeat today that this is not a negotiating strategy, but a definitive refusal. We are not interested in selling our shares."

That’s a pretty clear “We’re not that into you,” from an entity that pretty much calls the shots for Cogeco and its subsidiary Cogeo Communications. But some analysts believe that the raised offer wasn’t for the family -- although it did include a little sweetener for them -- but for minority shareholders that seem to be more receptive to a deal.

“Under the circumstances, Audet's decisive rejection of Altice's bid could not have come as a surprise,” wrote Bernstein media analyst Peter Supino in a note to clients Monday. “In that light, we assume that Altice has aimed this second offer at Cogeco's minority shareholders. The deal's valuation of Atlantic –11x forward EBITDA – certainly merits their attention.”

Minority shareholders appear to be open to a transaction. Altice USA CEO Dexter Goei said at the virtual Goldman Sachs Communacopia conference in September that it has received “supportive feedback” from some Cogeco shareholders. 

Supino, in an e-mail message, added that shareholder interest has been high in the deal.

“Our sense is that there is significant minority investor support for Altice’s proposal,” Supino said. “Whether the Audets will place a value on that, we don’t know.”

But just what could Cogeco’s minority shareholders do? Like their American counterparts, they could take their case to court, but the chances of that being successful are low. 

Robert Yalden, Stephen Sigurdson Professor in Corporate Law and Finance Faculty of Law, at Queen’s University in Kingston, Ontario, said while class action suits are not the norm around takeover bids in Canada, shareholders could sue under the “Oppression Remedy,” which allows any shareholder to take action if they feel the company has wronged them. But there are two very big hurdles in using the Oppression Remedy to try to force a controlling shareholder to sell: Canadian law requires company boards to act in the best interests of the company, not its shareholders; and it’s hard to prove you’re being oppressed just because a larger shareholder doesn’t want to sell. 

Yalden added that Canadian courts, like U.S. courts, usually give public companies the benefit of the doubt, assuming that a company’s board of directors made decisions on an informed basis and with the best interests of the company in mind, the so-called “business judgment rule.” So shareholders would have to make an extremely compelling case that the board has done something wrong.  

“Even if you made that case, I’m not sure where it would get you because what you’re trying to do is force a majority shareholder to sell,” Yalden said. “I think it would be very unlikely that a court would say the majority shareholder, by refusing to sell its shares, is acting improperly. I think it’s an uphill battle. That doesn’t mean they won’t try something, but it’s not obvious to me.”

While court action may be a long shot, it may not even be necessary. Most of the shareholder pressure to do a deal seems to be centered on the Altice portion of the transaction. 

In a research report Monday, Barclays research media analyst Kannan Venkateshwar noted that there is a big disparity in the multiples being offered for Cogeco’s Canadian and U.S. assets. According to the deal parameters, Rogers is offering about 8.5-to-9 times cash flow for Cogeco’s Canadian businesses, about in line with other past telecom deals. Altice USA’s bid for Atlantic Broadband is valued at more than 11 times cash flow, at the upper end of past U.S. media deals.   . 

Venkateshwar wrote that  the disparity between those multiples could eventually force the Audets to sell Atlantic Broadband and keep its Canadian holdings. The $3.9 billion in Altice cash could go a long way toward shoring up its balance sheet and competing more effectively with the larger Rogers. 

Earlier this year Cogeco unveiled plans to enter the wireless business, long a stronghold of Rogers, the most dominant mobile player in Canada. Cogeco executives have speculated that Rogers’ motivation to do a deal could be more about eliminating a competitor than expanding its reach. 

At the virtual BMO Capital Markets Media & Communications conference Sept. 15, Cogeco chief financial officer Patrice Ouimet said the company was not surprised by the Rogers and Altice USA bids, but was taken aback by how they did it.

“...Proceeding with a hostile offer on a family-owned company was something that was surprising to us,” Ouimet said. “Not the interest, but the way it was done, especially since the Audet family had indicated the night before that they would not sell in the transaction.”

He also was puzzled about the timing of the bid and speculated it could be connected to Cogeco’s plans to launch a wireless service. Cogeco submitted a plan to offer a Hybrid Mobile Network Operator (HMNO) wireless service, using its own spectrum and leasing network space from other carriers, to the Canadian Radio-television and Telecommunications Commission in February. That proposal is still awaiting approval from the regulatory agency. 

“Taking Cogeco out of the equation for Rogers is probably part of the equation to launch a hostile bid right now,” Ouimet said at the conference. 

In his report Venkateshwar wrote that buying Cogeco could “potentially smooth out the competitive environment for Rogers, particularly given its wireless market share in Ontario and Quebec (~47% and ~28% subscriber share, respectively).”

But it also could force Rogers to make a decision regarding its existing Cogeco investment. If the Audet family continues to fend off its advances, Rogers may just decide to sell its stake and focus on other things.

“Given the tightly held family ownership structures of Rogers and Cogeco, any transaction is ultimately subject to idiosyncratic choices made by a small set of individuals rather than the underlying economic or strategic rationale of the proposed deal,” he wrote.

Altice seems to get it, adding in the press release for its revised offer that it would withdraw the bid if it doesn't have a "mutually satisfactory" agreement or "at least a clear path forward to completion of a transaction," by Nov. 18. That gives both sides plenty of time to decide just how much they're into each other. 

Despite a rather pointed rebuff from Cogeco’s largest shareholder, Altice USA CEO Dexter Goei isn’t throwing in the towel just yet, saying at an industry conference that his company remains committed to its effort to purchase the Canadian telecom operator.

Altice USA launched a $7.8 billion bid to purchase Cogeco on Sept. 2. As part of that offer -- made in partnership with Rogers Communications -- Altice would purchase Cogeco’s Atlantic Broadband U.S. cable business, while Rogers would buy its Canadian operations for $4.2 billion. The offer -- C$106.53 per share -- represented a 36% premium to Cogeco’s stock price on Aug. 31.

Cogeco responded quickly, publicly stating on Sept. 2 that its board would evaluate the offer, but adding that its controlling shareholder -- the Audet family -- had not expressed any intention to sell. On Sept. 7, Cogeco executive chairman Louis Audet, also the top representative for the Audet family trust that holds its Cogeco interest, made it clear that the family did not intend to sell.

“I want to provide absolute clarity to stakeholders regarding our intentions in response to the recent unsolicited proposal to acquire Cogeco. Our stocks are not for sale,” Audet said in the statement. “And let me be clear, our refusal is not a negotiating position, it is final.”

At the virtual Bank of America Merrill Lynch 2020 Media, Communications & Entertainment Conference Wednesday, Goei didn’t seem ready to give up yet.

“We’re working,” Goei said. “This is a marathon not a sprint. We’re committed to trying to come to an end game. From our standpoint, that’s very simple, which is we’d like to be able to acquire the U.S. assets.”

He added that Rogers already owns a 33% interest in Cogeco Communications and 41% of Cogeco, which it has held for a “very, very long time.” 

“They’d like to be able to sort out their situation, one way or the other,” Goei continued. “We are going to be committed to continuing this process and this project. We’ll see where it ends up.”

Goei wouldn’t say how that would happen or if Altice USA would raise its offer, but he did say that the deal would be a good fit, likening Atlantic Broadband to a smaller Suddenlink, the Midwestern operator the company purchased in 2015. 

“That entire Florida to Maine footprint that they have is geographically pretty contiguous,” Goei said. “We like cable, we like traditional MVPDs, and size matters in our space -- for the technology investments, for the infrastructure investments, for  the content costs, for all of the amortization of the operational costs of the business. It’s pretty straight forward in terms of the synergies. They’re in every single line item across the board.”

While Goei said the business will continue to do well without the deal -- Altice USA had its two best quarters of growth in Q1 and Q2 -- opportunities like Atlantic Broadband don’t come around often.

“The opportunity came to us as we got introduced to Rogers,” Goei said. “Rogers has a big focus on Canada and no interest in the U.S. and vice versa. It’s just a question of timing. ...It’s not a question in any shape or form of us needing to do anything in particular. It’s just that you need to be reactive in M&A situations and this was a perfect opportunity for us to be reactive.”

While the hope is that an agreement can be reached, Goei said if a deal does not materialize, life will go on. 

“Plan A all the time to the extent there is attractive M&A is available, we’ll always prioritize that,” Goei said. “We will always be looking at stuff out there, and to the extent that we find a target that we find very attractive for whatever part of our business we are looking to grow, then we will use those proceeds for that. Assuming that doesn’t happen, because M&A is fraught with low probabilities of success depending on what the asset is and who the seller is and what the process is, we will look to buy back more shares and even maybe delever our balance sheet. It depends on the opportunity.”

Canadian telecom company Cogeco’s controlling shareholder categorically rejected the unsolicited takeover offer launched by Altice USA last week, stressing that there is no room for negotiation.

Altice USA offered about $7.8 billion for Cogeco on Sept. 2, a tandem deal where it would buy the telecom company’s U.S. assets -- Atlantic Broadband -- for $3.6 billion, while Canadian communications giant Rogers Communications would purchase Cogeco’s Canadian assets for $4.2 billion. The deal, valued at about C$106.53 per share, represented a 36% premium to Cogeco’s trading price on Aug. 31.

Since the offer, Cogeco’s stock price has soared -- it closed at C$132.16 per share on Sept. 2. The stock fell to C$106.75 per share on Sept. 8 as it has become clear that the Audet family does not want to sell.

Altice USA shares, up about 3.5% on Sept. 2 to $28.65 per share, fell to $26.25 on Sept. 8.

In a statement issued Sept. 7, Louis Audet, the appointed representative of the Audet family, executive chairman of Cogeco and president of Gestion Audem, which holds the family’s stake in Cogeco, left no room for interpretation. 

“I want to provide absolute clarity to stakeholders regarding our intentions in response to the recent unsolicited proposal to acquire Cogeco. Our stocks are not for sale,” Audet said in the statement. “And let me be clear, our refusal is not a negotiating position, it is final.

“Our father started this business 63 years ago in Trois-Rivières, Quebec, sowing the seeds of a business that today has a story of incredible growth,” he continued. “The company went public in 1985 and annual revenues by that time had increased to $20 million. Today they are $ 2.5 billion. The company is well managed, growing, strategically positioned for the evolving and dynamic future of the telecommunications and media industries.

“My family, together with our boards of directors and our management team, are very proud and satisfied with our long term vision for the continued growth of Cogeco and the ownership structure that makes this long term vision possible.”

Cogeco had said the Audet family did not want to sell shortly after it received Altice USA’s offer. Altice had subsequently said it was open to starting a dialog and Rogers pledged to keep Cogeco’s headquarters in Montreal. That apparently wasn’t enough to sway the family.

Whether Altice USA will take its case to shareholders remains to be seen. The Audet family holds 69% of Cogeco Inc.’s  voting rights, which in turn controls 82.9% of the vote of subsidiary Cogeco Communications, so any deal would have to include them. Altice USA CEO Dexter Goei is scheduled to speak at the virtual Bank of America 2020 Media, Communications & Entertainment Conference today (Sept. 9) at 3:20 p.m. 

Hours after Altice USA launched a $7.8 billion unsolicited takeover offer for the Canadian communications company, Cogeco said it has received the bid and its board of directors will review it, but that its controlling shareholders don’t want to sell. 

Altice USA said earlier today that it had offered $7.8 billion for Cogeco in a deal that would give it control of the Canadian company’s Atlantic Broadband U.S. cable assets. In addition, Altice USA said it had an agreement to sell Cogeco’s Canadian operations to one of its largest outside shareholders, Rogers Communications.

In a statement  Wednesday, Cogeco said it received Altice USA’s unsolicited offer after the close of business on Sept. 1 and it will be submitted to and reviewed by its board of directors today (Sept. 2). But the company added that Gestion Audem, the group that holds the Audet family’s controlling interest in Cogeco, has already indicated its intentions.

“Gestion Audem Inc. has already indicated that it does not intend to sell its shares and will not support the proposal,” Cogeco said in the statement. “The Corporations will not comment any further at this time.”

In a statement, Altice USA replied that it believes its "offer is very attractive and in the best interest of all shareholders, and we look forward to hearing from the Board."

Altice didn't say whether it will increase its offer for the company. Either way, Cogeco appears to be in play. 

The deal appears to be a rich valuation for the company. According to Altice USA, its C$106.53 offer for Cogeco represents a 36% premium to its closing price on Aug. 31. Since the deal was announced, Cogeco stock has soared on the Toronto Stock Exchange to C$114.5, up 15%. Altice stock was up 3.4% to $28.61 each in early afternoon trading. 

As far as the U.S. cable assets, Altice USA’s $3.6 billion valuation represents about 10.2 times Atlantic’s 2020 estimated EBITDA, according to Evercore ISI analyst James Ratcliffe. In a note to clients, Ratcliffe said he suspected Cogeco Communications chairman Louis Audet at least was reluctant to sign off immediately on the deal. 

“The tone and phrasing of the release indicates to us that the offer does not (at least not yet) have the support of Louis Audet,” Ratcliffe wrote. “The release appears designed to appeal to other members of the Audet family, and also to an argument on the fiduciary duty of independent members of the Cogeco board.”

Barclays analyst Kannan Venkateshwar estimated that 70% to 80% of Atlantic Broadband’s footprint overlaps with DSL service and its broadband penetration at around 40% is relatively low, which could mean a big growth opportunity. He noted that the bulk of ABB’s footprint is already upgraded to provide speeds of up to 1 Gigabit per second. 

“Overall, while there is still uncertainty as to whether the deal will happen, it does provide some insight into [Altice USA's] continued focus on driving growth through smaller acquisitions,” Venkateshwar wrote, pointing to its July purchase of Service Electric Cable TV of New Jersey. 

"However, we do believe this path is likely to get tougher given its already high leverage, valuation levels in cable and family/private equity ownership of many of the remaining private cable assets," he  continued. "We continue to believe that [Altice USA] might be part of some other cable combinations in the future as has been speculated in the past, although the bid/ask likely remains quite wide.” 

Discovery Communications CEO David Zaslav said Tuesday that reports that his company has held preliminary talks with 21st Century Fox Executives concerning a possible takeover were untrue, but added that the programmer has a long-standing relationship with 21st Century Fox.

Zaslav called into Fox Business Network’s Opening Bell with Maria Bartiromo, to congratulate the host on her one-year anniversary with the channel. Zaslav was once head of NBC Cable, which included CNBC, the network that launched Bartiromo’s career, and the two have been close friends for years.

After a few congratulatory exchanges, Bartiromo entered reporter’s mode, asking the Discovery chief is there was any truth to the speculation that the two companies held takeover talks. She added that 21st Century Fox had denied the reports.

“There is no truth to those rumors,” Zaslav said, adding that Discovery has worked together with Fox executives Rupert Murdoch, Lachlan Murdoch and Chase Carey on several projects in the past. and has a strong relationship wth the company.

“We looked at making some acquisitions together in Germany and Italy with Sky Italia and Sky Deutschland. We have a great relationship and we admire Fox,” Zaslav said.

The Australian Financial Review reported late Sunday that Fox executives met with Discovery officials about two weeks ago to discuss a possible takeover of the company, adding that talks were in the very early stages. Although some analysts have said a deal would make sense, a Fox spokesman called the AFR report “categorically untrue.”