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.”
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