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Canadas Vidotron Chooses Mate: Quebecor

Montreal-It's apparently all over but for the crying: Quebec-based publishing and printing firm Quebecor Inc. has won a protracted fight to acquire Le Groupe Vidéotron Ltée., that province's largest MSO.

The two sides signed an agreement in principle Sept. 12, according to Vidéotron spokesman Marc Snyder. The deal is expected to be approved by shareholders in the upcoming weeks.

The victory for Quebecor is a defeat for Canada's largest MSO, Rogers Communications Inc. The two companies have been vying for the hearts and minds of Vidéotron's board over the last six months.

Vidéotron is controlled by the Chagnon family, which includes founder Andre Chagnon and his son Claude, the company's CEO. They are the majority shareholders who last February had agreed to sell the MSO to Rogers in a stock swap.

The Rogers/Vidéotron deal would have created Canada's largest MSO, with about 3.7 million subscribers in Bell Canada Inc.'s Ontario/Quebec home turf. Instead, Vidéotron's shareholders are about to receive a cool $3.7 billion in cash for Vidéotron's 1.54 million cable-TV subscribers, plus broadcast-TV stations and related properties.

Quebecor's apparent victory ends the strangest chapter in Canadian cable TV history. It began last February, when Rogers CEO Ted Rogers persuaded the Chagnon family to join with him in the fight against Bell Canada.

After much media hoopla, Rogers' amicable takeover was unexpectedly threatened by the revelation of a "private deal" between the Chagnons and the Caisse de dépôt et placement du Québec, the province's largest pension fund and a minority shareholder in Vidéotron. Under its terms, the Chagnons were not allowed to sell to Rogers without the fund's consent.

The fund then used its leverage to bring in Quebecor, and the two spent six months in the courts and media undoing the Rogers takeover.

In many ways, the battle pitched the classic forces of English Canadian business versus French Canadian separatism, or at least was made to look as if it did. In the media, former separatist Prime Minister Jacques Parizeau did his best to paint Rogers' buyout of Vidéotron as yet another English attack on Quebec's cultural survival-and one that should be resisted at all costs.

In the same light, Quebecor was touted as a French-Canadian white knight: an irony, since Quebecor's holdings include Sun Media, Canada's most vociferously pro-English/anti-Quebec newspaper chain, and 160 printing plants in 14 countries.

The Chagnon family, whose loyalty to Quebec is well established, was strongly in favor of Rogers' takeover. Small wonder: together Rogers and Vidéotron presented a force large enough to take on not only Bell Canada, but also to stand tall in the North American media market.

Why the change? At press time, none of the players had given any reasons. However, it's likely that the combined power of public nationalism and private litigation changed the Chagnons' minds-just 19 days after their last public rejection of Quebecor's bid.

Still, thanks to a clause included in Rogers' Vidéotron bid, Ted Rogers won't walk away empty-handed. He winds up with a $166 million cash termination fee-one reason why the Vidéotron board had recommended against ditching the Rogers takeover in the first place.

Also, sources said, Rogers will be considered for future deals with Quebecor. However, $166 million is little compensation for the loss of a potential cable-TV behemoth. And even if RCI recovers by acquiring Cogeco Cable Inc.-as has been speculated in the Canadian business press-Cogeco's 900,000-subscriber base is no match for Vidéotron's 1.54 million. More importantly, Quebecor's success means Canada's cable-TV forces will remain divided on Bell Canada's home turf.

Whether this will actually matter remains to be seen. As the world's largest printer, Quebecor is not a force to be trifled with. Its takeover of Vidéotron will create a combined cable-TV, publishing, broadcast-TV and Internet powerhouse that may have caused as many sleepless nights for Bell as a combined Rogers-Vidéotron.

One thing is certain: losing Vidéotron to Quebecor is a major personal defeat for Ted Rogers. Short of taking over Canadian MSO Shaw Communications Inc.-which is about as unlikely as RCI taking over Quebecor-there's no way for Rogers to match what he would have gained from acquiring Vidéotron.