Ted Rogers aims to create a media giant in abid for rival Maclean Hunter
THE SURPRISE PLAT FOR MH
Ted Rogers aims to create a media giant in abid for rival Maclean Hunter
Ted Rogers is a tycoon who dreams big, talks big and borrows big— really big. Since 1960, when he launched Canada’s first commercial FM radio station, Toronto’s CHFI, while still a law student, Rogers has displayed a talent for spotting the potential in new communications technologies, and convincing lenders and investors to help him buy in on the ground floor. In the 1960s and 1970s, he pioneered the development of cable television in Canada. Over the past decade, Rogers’s company, Rogers Communications Inc., has plunged into the cellular telephone business, through Rogers Cantel Mobile Communications Inc., and the oncemonopolized long-distance telephone services market, as the leading partner in Unitel Communications Inc. Last week, he made his most daring play of all: a bid for Torontobased Maclean Hunter Ltd. True to form, Rogers, 60, said that he is pursuing a
vision—this time of a nationwide electronic superhighway, and of a U.S.-style multimedia giant that would be powerful enough to exploit the new technology. Declared Rogers: “In Canada, we need companies capable of meeting the challenge of delivering the information highway to the home.”
Rogers’s audacious proposal caught almost everyone off guard, including Bay Street financiers and Liberal cabinet ministers in Ottawa. Ronald Osborne, the bespectacled 47year-old accountant who is president of Maclean Hunter (the Toronto-based cable and publishing conglomerate also publishes Maclean’s) first learned of the move from Rogers during a meeting that he requested with Osborne and MH chairman Donald Campbell at 7:30 a.m. on Jan. 28. Stranded in Calgary by an ice storm that closed Toronto’s Pearson International Airport, Osborne participated by telephone.
Rogers sketched out a plan for what he
called a “strategic merger.” But Osborne quickly concluded that Rogers in fact was contemplating a takeover, not a merger. Five days later, as Rogers talked with bankers to firm up his offer, Maclean Hunter issued a press release announcing that Rogers had made “an unsolicited approach” proposing what it called a “takeover.” That in turn forced Rogers to call a news conference to expand on his plans. The publicity also sent the price of Maclean Hunter shares skyrocketing, as investors traded rumors about other possible bidders. MH shares closed the week on the Toronto Stock Exchange at $17.50, up $3 since the announcement.
But by week’s end, there still had been no firm offer from Rogers. After the exchange closed, Rogers and his board of directors revealed that they were not ready to table a formal bid, as widely anticipated, because they had encountered a complex and potentially costly technical hurdle in Maclean Hunter’s
ownership structure. While that gave Osborne a breathing space, he conceded in a Saturday morning interview in his office that his company is now “in play” and that many other potential bidders are showing interest. But he considered it unlikely that the prospect of competitive bids would deter the determined Rogers. “Mr.
Rogers only knows two words when he’s negotiating,” Osborne said. “ ‘No’ means Maybe’ and ‘Maybe’ means Tes.’ ” Osborne also insisted that he is not trying to obstruct Rogers or any other potential buyer. “Our board has a responsibility to get the best possible price,” said Osborne. “Because we haven’t rolled over and said, ‘Be our guest,’ people interpret that as hostility.”
The technical skirmish between the two companies arose in behind-thescenes discussions to define the nature of a bid. Analysts estimated that the cost to Rogers could be about $4 billion. But that led to a dispute between the parties about which stocks would be involved— ; in particular, the status of 36 million I Maclean Hunter shares, amounting to 17 iper cent of 216 million outstanding |§ shares, which are held by a special subsidiary company, Maclean Hunter \ Holdings. The disputed stock belonged to former Maclean Hunter president Donald Hunter, who created the holding company and sold a substantial portion of his shares into it in 1976 when he was dying of cancer. He wanted to ensure stability in the company’s shareholdings. But because Maclean Hunter owns the holding company, Rogers and his advisers said that its shares should not have to be included in the bid. At last week’s closing price of MH shares, that could add another $630 million to the bid. Osborne replied that, with no formal proposal on the table, it would be premature to decide on that. “We’re being asked to respond to certain things before we even know what the offer looks like,” said Osborne. Rogers, in turn, decided to ask the Ontario Securities Commission for a ruling on the status of the shares, a process that could take several weeks.
Rogers and his directors, meanwhile, vowed to forge ahead with the plan that he outlined at his news conference two days earlier. There, he told reporters that his company has $700 million in cash in its coffers and assurances from banks and other lenders that they would provide another $2 billion for the proposed deal. With that backing, combined with some Rogers Communications shares, he said, he planned to make an offer for all of Maclean Hunter’s operations, then lower his debt load
Up for grabs
MH publications; Rogers (at left, above), Osborne and BCE chairman Lynton Wilson last week at a Board of Trade dinner, broadcasting from MH Cable’s studio (opposite): an audacious takeover bid
by selling the company’s extensive U.S. cable holdings. With 542,000 subscribers in Michigan, New Jersey and Florida, Maclean Hunter’s U.S. cable operation has an estimated value of more than $1.5 billion. But Rogers said that he planned to keep Maclean Hunter’s Canadian broadcasting, cable, publishing and printing operations. The cable division has 700,000 subscribers, all in Ontario. The Canadian publishing division includes Chatelaine, Flare, L’Actualité, Marketing and more than 20 other consumer magazines. As well, MH owns a 62-per-cent controlling interest in the Toronto Sun Publishing Corp., which publishes tabloid newspapers in Toronto, Edmonton, Calgary and Ottawa and, in turn, controls the daily Financial Post. MH also owns 21 radio stations and CFCN television in Calgary and Lethbridge.
But as Rogers and his board worked on their formal offer, some analysts expressed doubts that the company has the financial muscle to shoulder such a large acquisition. Rogers Communications’ holdings are extensive. It is Canada’s largest cable operator, with more than 1.8 million subscribers in Ontario, Alberta and British Columbia. In addition to Cantel and its stake in Unitel, other holdings include 16 radio stations and a multilingual
television station. Rogers himself, who is the company’s president, exerts almost absolute authority. He controls 89 per cent of Rogers’ voting shares, even though his holding represents only a minority of the company’s stock. But because he has invested so heavily in new ventures, the company has only earned a profit once in the past 12 years. And while MH stocks soared after Rogers announced his bid, his own company’s declined by $2.37 to close the week at $19.88. After the stock market closed for the week, the company issued its financial results for 1993, showing that it lost $287 million, largely due to a $113-million restructuring charge at Unitel, compared with a $180.3-million loss in 1992.
By contrast, while some analysts chide Osborne and the rest of Maclean Hunter’s managers for being a group of stodgy but thorough “bean counters,” the company has recorded profits year after year for decades—even during recessions. Last year, it made a profit of $56.6 million on revenue of $1.7 billion, compared with an $81.2-million profit in 1992.
But unlike Rogers Communications, Maclean Hunter is not a one-man show. Neither Osborne nor the other managers and directors, individually or as a group, own a large controlling block of shares in the company. The company’s shares are widely held, with no individual or institution owning enough stock to cast a decisive vote on any issue. As a result, Osborne and MH managers have to walk a fine line between simply resisting a takeover and ensuring that it takes place under the best possible terms. They are obliged to elicit the best possible offer from any bidder and then submit it to shareholders for approval—even if they suspect that their own jobs may hang in the balance. “I suspect that if this goes through, there won’t be any job to hang in the balance,” Osborne said with a laugh. “But I can’t lie awake at night worrying about that.”
Maclean Hunter has long been the subject of Bay Street takeover rumors precisely because it is so widely held. In 1989, Osborne and the company’s management convinced shareholders to pass a so-called poison pill defence against hostile takeovers. Formally called a Shareholder Protection Rights Plan, it permits company directors to negotiate with potential bidders. But if any investor acquires more than 10 per cent of the company’s shares without the approval of the board, then the arrangement allows the company to sell one share of stock for each existing share at half the going share price. The measure was designed to prevent a so-called creeping takeover by someone buying stock privately from individual investors. But Rogers, who bought 15 million MH shares in January, dis-
closed his purchases to Maclean Hunter when he reached the eight-per-cent level.
Still, Osborne has other options that could possibly foil Rogers’s bid. One is to encourage offers from other potential bidders in the hope of driving the purchase price higher. Said Osborne: “A lot of people are interested in a lot of the assets of Maclean Hunter.” Another option is to identify a so-called white knight— an alternative bidder with priorities more closely matching Maclean Hunter’s own. Regardless of who emerges with control of the company, Osborne said that major changes are already in store at Maclean Hunter. Last fall, before Rogers approached the company, MH hired New York City investment bank Goldman Sachs & Co. to advise it on what to do with its profitable U.S. cable division. The anticipated convergence of telephones, television and computers into a single electronic network in the United States has prompted several huge mergers between companies with interests in television, publishing and telecommunications. Given that trend, Osborne said that Maclean Hunter instructed Goldman Sachs to explore all options, including forming a partnership with another company, or simply selling the holdings. '
Rogers argues that similar giants are needed in Canada. “There is so much at stake for Canadians in the field of electronic highways, it is vital that we have strong multimedia companies at the forefront of these developments,” he told reporters. Osborne is more cautious. “In the U.S. market, which is so huge, and where there are so many players, you’ve got to be big to be heard,” he said. “Canada’s a much
smaller market” He also rejected the suggestion that Maclean Hunter has failed to keep pace with changing technology. “I’d sure like somebody to tell me what we might have achieved if we’d done something differently,” he said. “It’s not clear to me that time and space have yet come together to the point where there’s a boat to miss.”
After his news conference, Rogers referred to the potential of combining publishing and electronic communications companies. “We have some exciting ideas about what we can do with the new technology,” he said. But other potential buyers were also sizing up Maclean Hunter’s publishing operations last week, anticipating that they could become available in a takeover battle. In Vancouver, Jack Boultbee, vice-president of finance at Hollinger Inc., the international publishing company controlled by Conrad Black, expressed interest “in any newspapers that come up for sale.”
Rogers also faces some onerous regulatory hurdles in Ottawa. Both the federal Bureau of Competition Policy and the Canadian Radiotelevision and Telecommunications Commission (CRTC) would review the deal. The combined companies would give Rogers control of one out of every three cable subscribers in Canada, and a near-monopoly in Ontario. It would also give it two AM radio outlets in Toronto, in contravention of CRTC policy. Last week, fed—».»a, »
eral Industry Minister jpl 11
John Manley said,
“We want to make sure the fundamental
elements of competition are preserved.”
Anticipating those concerns, Rogers argued that unless Ottawa allows him to expand his cable enterprise, the emerging multimedia business could be swallowed up by Bell Canada and the country’s other major provincial telephone companies. “Unless there is substantial consolidation in the cable industry to create companies able to stand toe-to-toe with the telephone monopolies, Canadians will never get a chance to decide,” he said. Rogers also promised that cable rates would not rise as a result of the deal. However, in arguing that Canadian companies must be dominant at home to compete against other foreign-owned communications giants, Rogers is taking a position that he argued against when he and others convinced the CRTC to end the phone companies’ monopolies over long-distance services.
Rogers is clearly driven by his grand vision of a brave new wired world. Last week, his more down-to-earth counterparts at Maclean Hunter managed to counter his sprint from the starting gate with some fancy footwork of their own. But Rogers displayed his confidence as he was leaving the auditorium where he held his news conference. Clapping a Maclean’s reporter on the shoulder, he said cheerily: ‘We’ll be seeing you soon.”
JOHN DALY with LUKE FISHER in Ottawa and BRENDA DALGUSHin Toronto
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