COVER

King of the road

BRENDA DALGLISH March 21 1994
COVER

King of the road

BRENDA DALGLISH March 21 1994

King of the road

COVER

Ted Rogers' communication empire is growing. But is he building a highway or a monopoly?

If the Canadian business community handed out awards in the same way that Hollywood bestows Oscars, Ted Rogers would walk away with an armful of statuettes this year. Decorating his mantle would be prizes for the best deal, best direction, best annual meeting, a lifetime achievement award and maybe even the Mr. Congeniality banner. Hollywood comes readily to mind because the Rogers Communications Inc. annual meeting last week was filled with all the suspense, humor, high drama and tragedy of the best movie thriller. From the meeting’s unusual setting, the elegant central courtyard of Toronto’s Art Gallery of Ontario, to the florid organ music of the Phantom of the Opera theme song—an inside joke between Rogers and Maclean Hunter Ltd.’s president, Ronald Osborne—the mood was theatrical. As for suspense, Rogers actually signed the $3.1billion deal to acquire Maclean Hunter on the stage in full view of the audience, just moments before he announced it. The meeting, like the takeover itself, was executed with near-flawless precision. The astonished gathering of shareholders and street-wise investment professionals responded as they would to any thrilling theatrical production. In a spontaneous eruption, they rose to their feet with a thunderous ovation.

But not everyone is applauding. Critics say that the 60-year-old Rogers’ proposed acquisition of Maclean Hunter puts too much control of the Canadian communications industry in the hands of one man. When Rogers signed the deal last Tuesday, he obtained an agreement from Maclean Hunter’s board of directors that it would stop opposing his monthlong takeover campaign in exchange for a 50-cent increase in his bid to $17.50 a share. Assuming that shareholders accept the offer, as they almost certainly will because no other offer appears to be coming forward, his company proposes to merge Maclean Hunter’s cable television operations with its own. Eventually, by swapping cable systems with other companies, Rogers aims to control most of the cable services in the heavily populated Toronto region. In addition, by acquiring Maclean Hunter’s other assets, its newspapers and periodicals—which include the Sun

papers in Ottawa, Edmonton, Calgary and Toronto, The Financial Post, Maclean’s, Chatelaine and L’Actualité—and its radio and television stations, Rogers will become Canada’s new media czar.

Added to Rogers’ other interests in cellular telephones, broadcasting and long distance telephone services, he will control a greater range of communications properties than any other person in Canada. Rogers says he wants such diversity to prepare for the so-called information highway. “I’m just sorry Maclean Hunter doesn’t have a (movie) studio,” Rogers said in an interview last week. “But I guess we can’t have everything.” Critics, however, say that Rogers already has far too much. Said Hudson Janisch, a communications law professor at the University of Toronto, of the Maclean Hunter acquisition: “It’s not visionary and forward thinking—it’s greedy.”

The proposed merger must now be reviewed by two major regulatory bodies in Canada, the Bureau of Competition Policy and the Canadian Radio-television and Telecommunications Commission (CRTC), before it can be completed (page 38). Although other industry participants were still struggling last week to grasp the full implications of the deal, it appears likely to generate intense debate and opposition. “The enormity of this thing is just beginning to sink in,” said Izzy Asper, head of the Global TV network. “I don’t want to say that the CRTC will be on trial, but it will certainly be under a microscope as to its ability to regulate this industry.” To emphasize the degree of concern that the broadcasting industry is beginning to feel, Asper told Maclean’s that if Rogers is allowed to be both the largest cable company in Canada, with 43 per cent of all English-speaking cable subscribers, as well as a program provider, as it is through its ownership of such channels as YTV and the Home Shopping Network, the broadcasting industry will retaliate by developing its own carrier. “We believe that carriers are carriers, and programmers are programmers and no one should be allowed to be both,” declared Asper. “Rogers can’t be both the toll bridge to the highway determining who gets to drive on to it, and also be driving some of the trucks that want access.”

Asper’s concern is that Rogers, as an information carrier, has an unfair ability to give

preference to its own programming. He says that Rogers should be allowed to combine its cable assets with Maclean Hunter’s only if it agrees to give up all its programming assets. Rogers, however, argues that in the not-too-distant future, technology will have advanced to the point where cable companies will be able to provide thousands of channels—in effect, almost unlimited access. Said Rogers: “I’m amused by people who complain about access, because in the future, with digital technology, we are going to have huge capacity.” He added: “It’s very helpful for Rogers to provide the greatest number of services possible for our subscribers. We want to give everyone access.” Asper remains skeptical. “That’s all very charming,” he said, but earlier this month the cable industry informed the CRTC that it would be able to provide only about six new channels to meet the demand created by the 48 proposed specialty channels that have applied to the CRTC for licences.

This is not the first time that Ted Rogers has stirred up controversy by plunging headfirst into the future. Two years ago, Rogers, through its investment in Unitel Communications Inc., took on the telephone companies’ monopoly and won the right to offer competing long-distance telephone services.

Rogers founded his communications empire in 1960 when, as an Osgoode Hall law student, he launched Canada’s first FM radio station, CHFI in Toronto. Since then, he has repeatedly gambled on the future, and so far seems to have been astute in judging not only the direction of technological change but also the degree of consumer interest in the new services that such advances permit.

Although his company has been notoriously unprofitable because Rogers keeps plowing profits back into it to build new businesses, its share price has soared. A $100 investment in Rogers Communications shares 10 years ago would now be worth more than $1,300. Enthusiasm for Rogers abounds— especially among those who have benefited directly from that spectacular growth. Ira Gluskin, a top investment manager in Toronto, says that Rogers is indisputably Canada’s leading businessman. “There isn’t a second who even comes close,” said Gluskin, who began buying Rogers’ shares in 1984. “We’ve made more money in Rogers than in any other Canadian stock.” And at the moment, after reviewing the possibilities that the Maclean Hunter acquisition presents, Gluskin says he is currently invested in Rogers’ stock “up to my ears.”

By contrast, Maclean Hunter, the company that Rogers says he has most coveted, is almost diametrically opposed in operating style. But Maclean Hunter, founded 106 years ago by John Maclean, a former reporter who wanted Canada to have its own magazines, has also been a star performer on the stock market (page 44). It has almost no debt and has a consistent record of profitability—prized attributes in the investment community. Investment manager Peter de

Auer, managing director of ABN Amro Capital Markets Canada, said: “I’ve never held Rogers because it was always either too leveraged or too speculative. But I know Maclean Hunter very well and it has been a superb company.” De Auer says that Maclean Hunter, unlike Rogers, has been a conservatively managed “technology follower” company that has preferred to wait for proven technology rather than trying to surf on the latest wave of innovation. Notes de Auer: “If I had to pick one large company manager in Canada who built his company in the absolutely best way that I can imagine, it would be [Maclean Hunter chairman] Don Campbell.” Campbell, who joined Maclean Hunter as an accountant in 1957, has followed a strategy of gradually adding new businesses as old ones matured and became less profitable. De Auer says that in the last decade Maclean Hunter had simply become so big that it was impossible to sustain the phenomenal rates of growth that it had achieved in the 1960s and 1970s.

But in the end, it was Rogers Communications—the younger, more aggressive risktaker—that swallowed one of Canada’s venerable blue-chip companies. Said Gluskin: “Twenty years ago, the idea that Rogers would take over Maclean Hunter would be given the same probability as Joe’s Hot Dog Stand taking over McDonald’s.” Even Rogers sounds a little dazzled by his success. “It was something I’d always thought about and talked about,” he told Maclean’s. “But the trigger really was that our company was financially strong enough to do it. We could have either gone off on exploits that were secondor third-level desirable or we could go for the big one, the one that we’ve

never dared dream of.” He added: “My experience is that you should go for the big one. Maclean Hunter is a glorious company.” Analysts say that because of Maclean Hunter’s almost debt-free condition and its large stable of revenue-producing assets, Rogers’ financial situation will be enhanced by the acquisition even though it will take on $2 billion in debt to complete the transaction.

But the deal also comes with many risks for

Rogers, who controls Rogers Communications by owning 90 per cent of its voting shares. To organize the financing for the deal, Rogers says that he and his wife, Loretta, an heiress to the Woolworth fortune, have reinvested all their personal wealth in Rogers Communications shares. “We’ve put our chips back into the company,” said Rogers. ‘We’ve put everything we own back in.” The paper value of their shareholdings is in excess

of $1 billion. Although in some circles Rogers has occasionally been compared to other great Canadian business gamblers like Robert Campeau and the Reichmann family, Rogers says he is not making the mistake they made by moving into vastly different businesses on a large scale (page 42). “Diversification is a great theory,” said Rogers. “But a lot of fellows don’t do well with it. They diversify into things they’re ignorant of.” Still, Rogers has taken on a different kind of risk. The success of this deal is dependent on the CRTC’s approval. And in the worst-case scenario, it could turn thumbs-down on the deal, leaving Rogers to carry the financing costs.

Maclean Hunter now faces its own uncertainties. President Osborne is planning to stay with the company at least until the CRTC makes its ruling, expected by early next year. But Rogers’ goal of amalgamating Maclean Hunter’s Canadian cable operations—and its more than 800 employees—with his own threatens to cause significant job losses, despite Rogers’ claim that layoffs are not inevitable, even in cable. “Yes, when you have a city with two full groups of people there will be an opportunity to rationalize,” he said.

“But with the growth that we’re having and with training programs, I’d be surprised if a year later we don’t have more people rather than less.”

Another uncertainty is the fate of Maclean Hunter’s magazines and newspapers, publishing assets that have been partially cushioned from the recession by the company’s cable revenues. Many financial analysts doubt that Rogers is really interested in these publishing assets, despite his previous assurances to the contrary.

For his part, Rogers last week was

making no commitments. “We haven’t seen the books yet, so we don’t know,” he said. “But it is not our intention to sell it. Hopefully, we’ll be able to add something to it and two plus two will equal 10.” Still, Rogers, who had said repeatedly during the month-long takeover struggle that he intended to quickly sell Maclean Hunter’s U.S. cable operations in the hopes of collecting as much as $1.5 bil-

lion to pay down debt,

appears to have abruptly changed his mind. “It may be possible to not have to sell the cable immediately and to keep it for five years,” he said. That about-face was triggered in part because of a regulatory cable rate rollback in the United States, which has probably reduced the amount of money those assets would bring if they were sold immediately. Said Rogers, who made $800 million when he sold his U.S. cable assets in 1988: “We loved

being in the States before, but we felt an obligation to sell our interests and put our money into Canada. Our first obligation is to Canada, so if we had to choose between selling the publishing or the U.S. cable, we’d sell the U.S. cable.” However, Rogers says the company will be consulting with the banks who are financing the takeover to determine whether they will agree to let him keep the U.S. cable assets for now.

Maclean Hunter’s 12,000

employees also face the un-

certainty of having a new boss, one who has a reputation for being a demanding workaholic. The reputation seems slightly at odds with the unfailingly gracious and polite manner that Rogers appears to extend to everyone from Maclean Hunter president Osborne, who at one point during the takeover battle likened Rogers to a “Detroit knee-capper,” to shareholders, his chauffeur—and even reporters. Said Phil Lind, Rogers Communica-

tions vice-chairman, who has worked with Rogers for 25 years: ‘Ted works all the time so, yeah, you can expect calls from him at odd hours.” At 2 a.m.? “No, not at 2 a.m.,” guffawed lind. “He’s not a nut. He’s not Howard Hughes.” But Lind conceded that Rogers has a reputation for verbally roughing up his senior managers occasionally in meetings. “If he doesn’t want to make a decision, he usually uses one of four complaints,” said Lind, drawing a circle on a sheet of paper and dividing it into four compartments

labelled, ‘Too late. Too early. Too much information. Too little information.”

Rogers says he’s heard the criticisms before but he doesn’t take them too seriously. “We don’t have much turnover here in management” he said. “I think they say these things for a bit of a joke. We do have strenuous debates, and sometimes at the board level. I don’t win all the votes even though I control the company. Graham Savage [senior vice-president of finance] has won votes. No one has ever been reprimanded or fired for causing me to lose a vote.”

Rogers claims that he performs a rather unique role in the company. “I’m in charge of the department of discontent,” he said.

“I’m discontented with pretty much everything. I like the role.

You can really stir it up. It keeps the company moving.” He says, for instance, that he will be taking a working holiday for a few days later this month. “When I come back,” he said, “I’ll say to people,

‘Why isn’t this done? Why isn’t that done? What’s been going on around here, anyway?’ ”

But the biggest uncertainty of all covers not just Maclean Hunter and Rogers but the entire rapidly changing communications industry. That unknown is driven by the radical technological innovations that are creating new services and causing old ones to become obsolete. As investment manager de Auer points out, the difficulty in predicting the future of communications—including the likelihood that the coming information highway will actually be built and travelled to the degree that some pundits are promising—is that only those people who understand the coming changes can truly grasp the kinds of new products and services that may be possible.

Rogers, who talked himself hoarse last week trying to explain his vision of the future, still leaves some people puzzled and trying to sort rhetoric from reality. “The fundamental truth is that the rapid evolution of electronic communications and computing, particularly on a personal level, is bringing us to a new era that will change how we will all work and live,” said Rogers in his speech to the annual meeting. But then, he went on to issue a warning that sounded self-serving to some. “Canadian companies are small and underfinanced by world standards,” he said. To preserve a unique and distinctive Canadian voice, we must take steps now to create the Canadian equivalents of a Time Warner, a Rupert Murdoch. We

must give Canadians unique new services, with more opportunities for emotional closeness, more opportunities to hear and tell Canadian stories.”

That focus on size rather than plans for new services, worries some observers. Said Eli Noam, director of the Centre for Telecommunications and Information Studies at Columbia University in New York City: “I am becoming a cynic about the information highway. I think it’s mostly sloganeering. I don’t see many real

plans for building it” And as for the idea that Rogers wants to grow bigger by acquiring competitors, he added: “If you’re going to err, you should have too many carriers, not too few, if you want to encourage innovation.” The University of Toronto’s Janisch said that he would be more impressed if Rogers were devoting his money and energies to developing new services and products, “not just making a grab for cable.” Added Janisch: “Rogers may be a visionary, but he’s a business visionary, not a true communications visionary.” Both professors cited, as an example of the kind of promising experiment that leads to new services, an agreement announced last week between Telecommunications Inc., the largest American cable company, and software giant Microsoft to develop new software on which to build the much-vaunted information highway.

But, as if anticipating even this criticism, Rogers told Maclean’s last week that he and Bill Gates, Microsoft’s dynamic chairman, have agreed to test new types of software in Vancouver offices and hospitals later this year. “Our talks are confidential,” said Rogers, “so I don’t want to blow his cover. But it will be new and done in Canada first.”

Rogers spent much of the past year meeting with communication industry leaders like Gates, trying to prepare for the changes that are coming as the three main home information and entertainment tools—the telephone, television and personal computer—gradually converge. Rogers, who doesn’t have a computer on his desk, says that Gates, a 38-year-old billionaire whose computer software runs most of the personal computers in North America, is clearly far ahead of him in understanding computers. “But I get the thrust of what’s going on,” said Rogers. “Things that seem to be very expensive today, he’s trying to make less expensive. He’s trying to move from very expensive supercomputers to off-the-rack computers to video file servers.” If he is successful, Rogers says that consumers will soon be able to call up entertainment, information, news or education programs on demand. “It will be a new world and that’s the world we’re going after,” he said. It is a big, bold dream, but it would make a nice encore performance for next year’s annual meeting. Rogers is probably already planning a big production number.

BRENDA DALGLISH