BUSINESS

SHIFTING GROUND

Changes in Canada and U.S. rulings give Rogers second thoughts on his bid for Maclean Hunter

BRENDA DALGLISH March 7 1994
BUSINESS

SHIFTING GROUND

Changes in Canada and U.S. rulings give Rogers second thoughts on his bid for Maclean Hunter

BRENDA DALGLISH March 7 1994

SHIFTING GROUND

BUSINESS

Changes in Canada and U.S. rulings give Rogers second thoughts on his bid for Maclean Hunter

BRENDA DALGLISH

Sometimes in business, the success of a deal depends on luck even more than good planning or sound logic. Such was the case last week when two unexpected, negative developments hammered Maclean Hunter Ltd. (MH) even as it searched for a way to top a $17-a-share offer made to shareholders by Rogers Communications Inc. on Feb. 11. First, the federal government announced, in its budget last Tuesday, that it was closing the tax loophole known as a “butterfly” provision.

That was the very clause that Maclean Hunter said it was counting on to match Rogers’ tax advantages in the event of future asset sales. Then, in the United States on the same day, the Federal Communications Commission (FCC) ordered a seven-per-cent cut in cable television rates. That cut, in effect, reduces the value of Maclean Hunter’s U.S. cable assets and both of those changes may hinder the company’s efforts to improve on Rogers’ offer. ‘The Rogers camp has been dealt a couple of very attractive cards in the last few days,” said analyst Andrew McCreath of Gordon Capital Corp. in Toronto.

“Unless Maclean Hunter is able to come up with an unusually good strategy, they’re going to lose.”

Last week, amid such uncertainty about the implications of the two regulatory changes, MH mailed an information circular to shareholders advising them to reject Rogers’ bid—but offering no concrete alternative, except to say that it was continuing to pursue the sale of individual assets. In a letter addressed to shareholders, chairman Donald Campbell wrote that although MH has “an outstanding record of profitability” its stock price is undervalued at times. “The unsolicited offer by Rogers Communications made last week [Feb. 11] seeks to take advantage of the present undervaluation to the detriment of shareholders.”

But before Maclean Hunter’s circular had even landed in shareholders’ mailboxes, Ted Rogers, Rogers’ president and founder, hinted that his offer may be “too generous” in light of the cable rate cut in the United States. Rogers said, in an interview with The Globe and Mail last week, that the FCC’s

action knocks about $1.50 off the value of an MH share. Rogers did not indicate whether he was planning to alter his bid and he declined to be interviewed by Maclean’s. But he already had confirmed in the Globe interview that the asset he really wants is MH’s Canadian cable operation. That runs contrary to his initial argument that MH’s non-cable assets, its newspapers and periodicals— which include Maclean’s magazine—were vital to his vision for the so-called informa-

tion highway, the multimedia communications network that eventually is supposed to combine telephones, televisions and computers. “Everyone thought that was bull at the time,” said one analyst who commented on condition that she was not identified. “Now, he’s admitted that it’s bull.”

MH president Ronald Osborne was even more direct in his analysis. Osborne bluntly accused Rogers, whose revenues in 1993 were $1.3 billion, of manoeuvring to force the breakup of his $1.7-billion company so that he can hive off its Canadian cable operations. Declared Osborne: “It’s green mail of the highest order.” By threatening a takeover at a relatively low price, said Os-

borne, Rogers appears to be trying to coerce MH into selling him its Canadian cable assets. “It sounds like a Detroit knee-capper,” said Osborne. “If you don’t give him a hundred bucks, he’ll blow your leg off.”

The whole notion of an information highway also took some hard knocks last week following the FCC ruling and the subsequent collapse of a proposed merger between BellAtlantic Corp. and Tele-Communications Inc. (TCI). That deal, which was to combine one of the largest telephone companies in the United States with the country’s largest cable company, had been cited by Rogers as one of the reasons why Rogers and MH should join forces. Together, Rogers claimed, they would be fortified for the information highway.

Observers are now saying that the Bell Atlantic and TCI deal fell apart because they were not able to find a way to amalgamate their businesses profitably. Unlike Rogers, Osborne has insisted that the information highway has been overblown. Further, he questions Rogers’ claim that synergy exists

between cable television and MH’s other publishing activities. “Synergy is the abominable snowman of Canadian business,” said Osborne. “It’s supposed to be big, and everyone talks about it, but no one has ever actually seen it.”

As for Maclean Hunter’s recent run of bad luck, Osborne remains philosophical. “I don’t think that any of these things are as detrimental as some people are suggesting,” he told Maclean’s. “Bad luck—and good luck—tends to run in spells,” he said “Our turn will come.” For the moment, however, it is Rogers who seems to have the aces up his sleeve.

BRENDA DALGLISH