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May 8, 2018

Quebecor buying Caisse stake in Quebecor Media for $1.69 billion

Quebecor's headquarters in Montreal

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MONTREAL -- Quebecor (QBRb.TO) is gaining full control of its Quebecor Media subsidiary by paying $1.69 billion to acquire the interest of the Caisse de depot et placement du Quebec, which helped the conglomerate to prevent Videotron from becoming part of Rogers in 2000.

The provincial pension fund manager, which started to reduce its stake in 2012, is selling the remaining 17.6 million shares it holds, representing 18.47 per cent of Quebec Media.

"Quebecor will now be better equipped to seize all the business opportunities that arise and will be able to fully control its destiny," president and CEO Pierre Karl Peladeau told shareholders at its annual meeting.

The Caisse initially owned 45 per cent of the Quebecor subsidiary after injecting $3.2 billion to help the media conglomerate pay $4.9 billion to counter the offer from Rogers Communications to acquire cable operator Videotron, which owned the TVA television network.

According to the agreement, the Caisse could sell its remaining stake starting Jan. 1, 2019 through a public offering.

Peladeau, who is Quebecor's controlling shareholder, has repeatedly credited the Caisse's support for helping to maintain a major head office in Quebec.

"Thousands of jobs have been created. That would not have been the case had the Rogers transaction been acted upon," he said at a news conference.

By gaining full access to the cash flows that it generates, Quebecor will be better equipped to seize business opportunities that arise and have full control over its destiny, Peladeau said.

Under the deal, the Caisse will receive $1.54 billion in cash and $150 million in convertible debentures that will be convertible into Quebecor class-B shares.

The convertible debentures will have a six-year term maturing in 2024 and will bear an annual interest rate of 4.0 per cent.

Caisse chief executive Michael Sabia said the deal allows the pension fund manager to reallocate the money to new investment opportunities in Quebec companies.

"Through the convertible debenture, la Caisse maintains an interest in the business, while providing Quebecor with increased financial flexibility to pursue its growth plan," Sabia said in a statement.

The deal, which is subject to the customary closing conditions and regulatory approvals, is expected to close by June 22.

Analyst Aravinda Galappatthige of Canaccord Genuity Corp. said gaining full control of Quebecor Media will finally eliminate a holding company discount for Quebecor shares, gain full access to the subsidiary's free cash flow and facilitate dividend increases.

"We note that the board has set a dividend payout policy at 30 to 50 per cent of free cash flow, to be achieved gradually within four years," she wrote in a report.

The announcement came as Quebecor doubled its quarterly dividend to 5.5 cents per share and reported its first-quarter profit grew compared with year ago.

Quebecor reported a profit attributable to shareholders of $56.7 million or 24 cents per diluted share, up from $3.9 million, or two cents per diluted share, a year ago.

Revenue totalled $1.01 billion, up from $1.00 billion.

On the Toronto Stock Exchange, Quebecor shares gained nearly three per cent at $24 in afternoon trading.

 

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