Cogeco is an attractive asset that would be coveted by any service provider on the M&A hunt. But Rogers Communications' motivation to join Altice USA in a hostile bid to divvy up the Montreal-based operator may run much deeper than that, reckons a top Cogeco exec.

Cogeco is attempting to enter the wireless business in Canada under a proposed Hybrid Mobile Network Operator framework that is currently under review by the Canadian Radio-television and Telecommunications Commission (CRTC). Such a move could potentially pit Cogeco in direct competition with Rogers, a big Cogeco stakeholder that also runs its own mobile service.

"Taking Cogeco out of the [mobile] equation for Rogers is probably part of the equation to launch a hostile bid right now," Patrice Ouimet, Cogeco's SVP and CFO, said Tuesday at the BMO Capital Markets Media & Telecom Conference.

Under a $7.8 billion offer made two weeks ago, Altice USA is pushing to acquire Cogeco, retain its US assets (Atlantic Broadband) and then sell Cogeco's Canadian assets to Toronto-based Rogers, which is also Cogeco's largest long-term shareholder.

The boards of Cogeco as well as Gestion Audem Inc., a company controlled by members of the Audet family that holds key stakes and 69% voting rights in Cogeco, have all rejected the offer. Louis Audet, who represents the Audet family on behalf of Gestion Audem, amplified the point that the family's "refusal is not a negotiating position, it is definitive."

Proceeding with a hostile bid for a family-controlled company "was something that was surprising to us – not the interest – but the way it was done, especially since the Audet family had indicated the night before they would not sell in the transaction," Ouimet said. "The interest in our company is not that surprising. We have attractive assets in both countries and strong performance as well."

Altice USA has so far stood firm. "We remain committed to the process," Dexter Goei, Altice USA's CEO, said on Tuesday at the Goldman Sachs Communacopia Virtual Conference, later reiterating that he views this process as "a marathon, not a sprint."

"We've gotten very positive feedback from shareholders of the target … that would like to see us engaged here in a process," Goei added.

Tensions surfacing
A separate discussion at the same as the BMO Capital Markets event with Joe Natale, president and CEO of Rogers Communications, highlighted some of the tensions that have been brewing between Rogers and Cogeco.

Natale said his company's interest in bidding for Cogeco with Altice USA centers on how Rogers will invest in the long term and how those investments, including those for next-gen wireline and 5G networks, will play out in Quebec and parts of Ontario where Cogeco operates.

"This is really about answering some basic questions as we look out our investment into the future," Natale said. "We're looking at what we're doing in every province across the country … That might sound extreme, but that's because we're at a critical juncture in the history of our industry in Canada."

As Rogers, which has a 33% economic stake in Cogeco, weighs its capital plans for the mid and long term, the company is asking: "Do our plans include Cogeco territory or not?" Natale explained. "Is [that investment] with Cogeco inside as part of a partnership here, or is it not? It's two fundamentally different decisions … It's been a question 20 years in the making."

Natale later sidestepped a question that pressed whether this is a "now or never" moment for Rogers regarding selling or buying equity in Cogeco, holding that it would be "unfair" for him to lay out Rogers' complete deal strategies and M&A plans.

Cogeco: We're a buyer, not a seller
Cogeco, meanwhile, appears to be far more interested in expanding through M&A rather than being an M&A target itself.

Cogeco, which has made a handful of US acquisitions, including Atlantic Broadband in 2012 and Metrocast in 2017, is sizing up acquisition opportunities in both the US and Canada.

Ouimet said Cogeco has a target list of 35 US companies it would attempt to buy if they happened to come on the market, including small operators as well as others that are similar in size to Metrocast.

"We have a lot of flexibility to do something really quick up to $1 billion," he said. "Above that, we have the room to structure the transaction."

Ouimet said Cogeco's mobile/wireless ambitions extend to the US. "The possibility of entering into an MVNO in the US is real," he said. "We could potentially do this, which is not the case in Canada right now."

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— Jeff Baumgartner, Senior Editor, Light Reading