Copyright 2007 Toronto Star Newspapers, Ltd.
The Toronto Star
January 23, 2007 Tuesday
By Chris Fournier, Bloomberg News
From Lexis Nexis
The "probability is growing" that Toronto-based Rogers will buy Calgary-based Shaw, the second-largest cable company, because the combination of the two would create the most shareholder value, according to National Bank analyst Greg MacDonald.
"Rogers offers the greatest potential operating synergies, which could drive further value" after a deal, MacDonald wrote in a note to clients yesterday. "Rogers could pay up to the low-mid $50 per share for Shaw before its stock would experience any real weakness."
Rogers and Shaw have taken customers from telephone companies including BCE Inc. by offering cheaper phone service via cable lines.
In fact, Rogers has surpassed BCE in market value for the first time. Last week, it ended trading on the Toronto Stock Exchange with a value of $24 billion. BCE, the country's biggest telephone company, was worth $23.8 billion.
Canadian phone companies lost an estimated 8 percent of their residential customers in 2006 as subscribers switched to cable, according to Convergence Consulting Group Ltd.
Shares of Rogers, which have tripled in the past three years, reached a record $38.79 on Jan. 15. Rogers reported on Jan. 8 that its cable-phone subscribers rose threefold in the fourth quarter to 95,100.
Shaw stock, which has more than doubled in two years, reached a record $43.81 on Jan. 12. A day earlier, Shaw said first-quarter profit rose 7.2 percent, more than analysts had estimated, after the company added 18 percent more subscribers to its digital-phone service.
MacDonald, who rates Rogers "outperform" and Shaw "sector perform," said a merger might create $1.9 billion to $2.2 billion in value for Shaw, or $8 to $10 a share."Valuation is a consideration for both stocks, since the Shaw family may favour Rogers equity to cash for tax purposes," MacDonald wrote.
Surpassing BCE in stock market value highlights Rogers' success in capitalizing on demand for cellphones, high-speed Internet and video downloads, while BCE has struggled amid an exodus of fixed-line customers.
"The market is willing to pay for the growth and the positioning of Rogers," said Stephen Gauthier, a partner in Montreal-based investment firm Gauthier & Cie., which oversees investments including a stake in Rogers.
"I'm happy that investors have recognized the value of this company."
BCE, whose shares have gained 11 percent over three years, has shed units to focus on its Bell Canada phone operations. In December, it sold its satellite communications business and raised its dividend to attract investors.