Updated: Cogeco rejects Altice USA and Rogers' plan for $8B buyout

In order to get its hands on Atlantic Broadband, Altice USA has made a $7.8 billion cash offer to buy Cogeco by working with Rogers Communications.

Wednesday morning, Altice USA offered to buy Cogeco (CGO) and Cogeco Communications from Rogers Communications, which owns a 41% share in the former and 33% of the latter, and members of the Audet family that own Cogeco.

Wednesday afternoon Cogeco weighed in on the unsolicited, non-binding proposal from Altice USA and Rogers Communications. Cogeco (CGO) and Cogeco Communications (CCA) said in a press release that following the close of business on Tuesday, it received an unsolicited, non-binding proposal from Altice USA and Rogers Communications.

"The non-binding proposal will be submitted to and reviewed by the Corporations' boards of directors today, Cogeco said in its press release. "The non-binding proposal of Altice USA and Rogers Communications Inc., which was pre-emptively announced today by Altice and Rogers, has been reviewed by Gestion Audem Inc., a company controlled by the members of the Audet family holding 69% of all voting rights of CGO which in turn controls 82.9% of all voting rights of CCA. Gestion Audem Inc. has already indicated that it does not intend to sell its shares and will not support the proposal. The corporations will not comment any further at this time."

Under the terms of the complex deal proposed by Altice USA, it would take control of Atlantic Broadband, which Cogeco bought from Arby Partners for $1.36 billion in 2012, and then in a separate deal, sell-off the remaining Canadian Cogeco assets to Rogers Communications. Rogers is Cogeco’s largest long-term shareholder.

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Out of the proposed $7.8 billion, Altice would pay about $3.6 billion for Cogeco's U.S. assets, namely Atlantic Broadband. In a separate press release Wednesday morning, Rogers confirmed Altice USA's offer.

If the deal does happen, Altice USA would gain about 480,000 Atlantic Broadband subscribers while extending its footprint further south on the East Coast. For Rogers, Cogeco has roughly 800,000 internet customers across its Ontario and Quebec footprint.

"I think Altice is looking to expand its footprint to significant parts of the Atlantic Coast, where it already has a major presence in the New York metropolitan area," said Jeff Heynen, who covers broadband access and home networking as a senior research director at Dell'Oro Group. "The COVID-19 pandemic has shown operators just how critical broadband is as an anchor service. Broadband revenue and margin growth benefits immensely from scale, which is why we are seeing a growing number of transactions involving Tier 2 cable operators right now.

"Outside of building out new networks, the easiest way to expand and achieve that scale is through an acquisition."

All the multiple voting shares of Cogeco are held in a company controlled by Louis Audet, the executive chairman of Cogeco, and members of the Audet family. Altice USA said in its press release that it was offering a "sizable premium" on the Audet shares. 

The offer includes $612 million to the Audet family for their ownership interests, which include 100% of the multiple voting shares of CGO and approximately 0.9% of total outstanding CGO subordinate voting shares (“CGO SVS”).  In its press release, Rogers said it would pay C$4.9 billion for Cogeco's Canadian assets. The deal values Cogeco at C$106.53 per share, a 36% premium to its closing price on Monday

"Rogers is fully supportive of the significant value being surfaced for all shareholders through the Altice USA offer," said Rogers CFO Anthony Staffier, in a statement. "As well, the transaction consideration to be paid by Rogers, net of the value of the CCA and CGO shares that we currently hold, will be fully financed using existing available liquidity. We do not anticipate any need to issue equity as a result of this transaction and our current dividend of $2.00 per share is maintained.”

Shares of Cogeco were up nearly 30% Wednesday morning while Altice USA saw a 5% increase on the news. Rogers' shares increased by nearly 6%.

With the deal to buy Atlantic Broadband, Cogeco entered the U.S. market. Atlantic Broadband is the ninth-largest cable provider in the U.S. Atlantic Broadband provides TV, internet, phone and enterprise business services to more than 450,000 business and residential customers located in 11 states: Connecticut, Delaware, Florida, Pennsylvania, Maine, Maryland, New Hampshire, New York, South Carolina, Virginia, and West Virginia.

Altice USA bought Suddenlink Communications five years ago for $9.1 billion and also bought New York-area cable operator Cablevision the same year for $17.7 billion from the Dolan family and other public shareholders.

Some of Atlantic Broadband's current footprint is adjacent to Altice USA's footprint in the former Cablevision and Suddenlink properties, which, in addition to more subscribers, would give it economies of scale. Altice bought cable pioneer company Service Electric Cable T.V. in New Jersey on July 14 for $150 million.

Another wave of consolidation?

In addition to Altice USA, Rogers and Cogeco, FierceVideo reported on Tuesday that private equity firm TPG is reportedly looking to sell off Astound – its U.S. cable operator group that includes Wave Broadband, RCN and Grande Communications – for more than $8 billion.

"If you think about the last recession, video was the service that helped keep cable operators profitable. Broadband is that service now," Heynen said. "Broadband is also much more immune from the high churn rates video has seen over the last few years. So again, residential broadband expansion is a smart bet, especially if you think a recession is likely to endure for many months.

"Finally, I think that operators are trying to offset their financial exposure to the SMB area, which obviously hasn’t done well during the pandemic. The best way to do that is through an expansion of your residential broadband footprint."