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Cogeco’s Majority Investor Spurns Altice’s $7.8 Billion Bid

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(Bloomberg) -- Cogeco Inc.’s controlling family spurned a plan by Altice USA to acquire the business for $7.8 billion -- a deal that would let it obtain the Canadian cable company’s U.S. assets and sell the rest to Rogers Communications Inc.

Gestion Audem, the Audet family’s holding company, doesn’t intend to sell its shares and rejects the proposal, Cogeco said on Wednesday. Independent board members also shot down the unsolicited offer. Altice USA had said earlier in the day that it would pay $3.6 billion for the U.S. assets, which consist of Atlantic Broadband, the ninth-largest U.S. cable operator.

The response deals a setback to a potential deal, though perhaps not a death blow. Investors and analysts seem confident that a transaction could go through -- if the terms are right -- and shares of Cogeco maintained much of their gains on Wednesday. The Audet family holds 69% of voting rights at the Montreal-based company.

“The family takes pride in its stewardship role,” Louis Audet, president of Gestion Audem, said in a statement turning down the proposal.

Altice’s offer is “fair as a first bid,” Desjardins analyst Maher Yaghi said in a report. But there is meaningful risk that the Audet family won’t go along with any deal. The Quebec government also may push back, especially since the province is resistant to having one of its companies fall into outside ownership.

Cogeco shares had their biggest intraday gain ever on news of the takeover bid, soaring as much as 34% to C$106 in Toronto trading. Later in the day -- after the Audets voiced their opposition -- the shares were still up 17%. Altice USA rose as much as 5.9% to $29.30 in New York.

Altice’s offer includes $612 million to the Audet family for their ownership interest.

By offering to buy Atlantic Broadband, Altice USA has gone after one of the few remaining cable companies with any scale in a heavily consolidated U.S. market. Comcast Corp. and Charter Communications Inc., the two largest U.S. cable companies, are much larger than Altice. The third-biggest, Cox Communications Inc., is controlled by the Cox family, complicating any potential acquisitions.

The potential Cogeco deal would give Altice 1.1 million new customers in 11 states.

“If they can get it for anything like their offer price, it would be a great addition,” said Craig Moffett, an analyst at MoffettNathanson LLC. “It would help diversify away from the low-growth New York area Optimum business, and would give them a longer runway for broadband growth and consolidated margin expansion.”

Dealmaking Return

The Cogeco offer represents a return to dealmaking for Altice, controlled by billionaire Patrick Drahi. He swooped into the market with the acquisitions of Suddenlink in 2015 and Cablevision in 2016 with a plan to create another cable giant in the U.S. but had gone quiet after his European business struggled.

Debts of more than $30 billion built up in the French-Israeli businessman’s global M&A push have become less of a concern to investors since a phone-industry price war eased in France and the business stopped losing customers to rivals.

Drahi’s confidence was on display more than ever last year when he shook up the art world by acquiring iconic auction house Sotheby’s. His European media business has been hit hard by an ad-revenue slump during the coronavirus lockdowns, though recent investments in top-flight soccer are helping to keep subscribers loyal.

Altice USA, meanwhile, has seen its internet subscribers continue to grow, especially this year as Americans work and learn online during the pandemic. That growth has helped offset the loss of video subscribers as consumers drop traditional TV for newer streaming services. Like its peers, Altice USA has also begun selling mobile-phone service.

Family Business

At Cogeco, Louis Audet served as chief executive officer of the family business for 25 years before becoming chairman in 2018. His late father, Henri, founded the company in 1957 with one television station in Trois-Rivieres, Quebec. The company went public in 1993 and bought Cabovisao-Televisao Por Cabo SA in Portugal in 2006. After six years of struggling to turn a consistent profit in Europe, Cogeco sold Cabovisao to Luxembourg-based Altice.

Cogeco has looked to the U.S. market for growth in recent years, acquiring Quincy, Massachusetts-based Atlantic Broadband, which operates cable systems in Pennsylvania, Florida, Maryland, Delaware and South Carolina, in 2012. It announced a $1.4 billion deal to buy Pennsylvania-based MetroCast in 2017.

Beyond the Audet family’s response, a big question mark for the Rogers part of the deal will be how willing the French-speaking province of Quebec is to allow a sale of a homegrown communications company. History suggests there could be pushback. In 2000, Quebecor Inc. and pension fund Caisse de Depot et Placement du Quebec helped circumvent a bid by Rogers to acquire Quebec-based cable operator Groupe Videotron.

If talks ultimately do move forward, other suitors might emerge, said Philip Cusick at JPMorgan Chase & Co.

“This could be the beginning of a negotiation, rather than an outright no,” he said. “We would also not be surprised to see other cable companies interested in the company -- Charter and Cable One have not been shy about their desire to acquire more cable.”

(Updates with comment from Louis Audet in fourth paragraph.)

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