Copyright 2004

Daily Deal/The Deal

September 14, 2004 Tuesday

Rogers Communications Inc. is buying back AT&T Wireless Services Inc.'s 34.1 percent stake in Rogers Wireless Communications Inc. for C$1.76 billion ($1.36 billion).

Rogers confirmed in a statement Monday, Sept. 13, that it reached a tentative deal to acquire 48.6 million shares of Rogers Wireless at C$36.37 each, after saying last week that it would help AT&T unload the stake by Sept. 30.

The deal, which was widely expected, will give Rogers about 90 percent of Canada's second-largest mobile-phone company. Bell Mobility is Canada's largest mobile provider, followed by Rogers, Telus Corp. of Burnaby, British Columbia, and Microcell Communications Inc. of Montreal.

Toronto-based Rogers said in its statement that it expected to announce a firm agreement later on Monday after its board had met.

Redmond, Wash.-based AT&T in May rejected a C$31 a share bid by Rogers for the stake but failed to find another buyer. Under a 1999 shareholders agreement, Rogers Communications had the right of first negotiation on the Rogers Wireless stake.

AT&T Wireless, which Cingular Wireless LLC of Atlanta is taking over in a $41 billion deal, announced plans April 28 to sell the stake to pay down some of its $10.4 billion debt.

Analysts at Dominion Bond Rating Service Ltd. said last week that Rogers had only about C$200 million in cash as of June 30 and would have to raise more money to buy the AT&T stake. Rogers did not say how it would fund the purchase.

When it announced Sept. 7 that it would help AT&T Wireless find a buyer for the stake, Rogers said it was considering other moves, including a possible bid for Microcell, which is the target of a C$1.1 billion hostile bid by Telus.

Analyst Eamon Hoey, president of Hoey Associates Telecommunications Consulting Services Inc., said Monday that Rogers is unlikely to bid for Microcell now that it has a deal with AT&T Wireless, but it may consider taking Rogers Wireless private.

Rogers Communications already owns 56 percent of Rogers Wireless. The remaining 9.9 percent is publicly owned. Rogers Communications is Canada's second-biggest cable company and owns Major League Baseball's Toronto Blue Jays and the Rogers Video chain of stores.

Rogers Wireless stock traded up C$2.71 to C$40 on the Toronto Stock Exchange Monday. Rogers Communications traded up C$1.27 to C$24.81.

The implications of the stock buy-in for Microcell were not yet clear. Telus launched a hostile bid for Microcell in May and has extended its offer several times in recent months, while the target has sought a white knight. Despite the delay and maneuvering, many had seen Telus as the lead bidder.

"Rogers is not under the same pressure [to acquire Microcell] that Telus is under," said Mark Quigley of Yankee Group.

Telus relies on wireless and digital subscriber lines to offset flat growth prospects in its wireline business.

Rogers Wireless, however, isn't saddled by a wireline operation. While Rogers' cable business has felt some pressure from satellite providers, Quigley said, it can look to consumer voice services for growth as the markets for cable and Internet telephony develop.

Microcell's broadband wireless unit, Inukshuk Internet Inc., could prove a wild card. The unit has attracted the attention of mobile-phone pioneer Craig McCaw, who has invested in broadband wireless. He took a position in Microcell in August through Clearwire Corp. of Kirkland, Wash., which invested $160 million in a private placement that will give Inukshuk ammunition to pursue buyouts.

Inukshuk might prove alluring to Rogers, which has significant broadband offerings, if Rogers could come to terms with Microcell and McCaw.

"A less heralded but still significant asset of Microcell is Inukshuk's holdings of [wireless broadband] licenses in 12 of Canada's 13 regions," said Jim Wiesenberg of Phoenix investment bank Carmichael & Co. LLC. "Besides gaining more market share as a conventional wireless services provider, [Rogers] could really plow virgin ground with a superbroadband wireless services extension to its current wired and wireless offerings."