The struggle for Quebec’s Vidéotron stirs debate over nationalism and ‘Toronto buying Montreal’
Robert L’Herbier is one of the few diners in Montreal’s fabled Beaver Club this evening, but he still ambles among the tables, seeking out gossip and dispensing opinions, just like he did in the old days. From the late 1960s through the early 1980s, L’Herbier could regularly be found lunching in the Beaver Club’s exclusive back-room. From his table, the revered—and sometimes feared—head of television programming at Quebec’s TVA network cut the deals that helped fashion the province’s small-screen culture. TVA was Quebec’s first commercial network, fighting for viewers back then against the more highbrow Radio-Canada, just as CTV once did against the CBC in English Canada. And much of TVA’s ascendancy from the second channel to the mainstream powerhouse it became rested on L’Herbier’s keen sense of the popular mood, his instinct for what Quebecers wanted to watch on the box.
On this night, the now-retired L’Herbier is fretting about a business deal that is rattling not just boardrooms and newsrooms in Quebec, but seeping into its living rooms as well: the prospective sale for stock, valued last week at $5.7 billion, of the Montreal-based cable company Groupe Vidéotron Ltée, to Rogers Communications Inc. of Toronto (which also owns Macleans). Relationships between Canadians and their cable companies can be touchy affairs, and if L’Herbier’s antennae are still working, this deal has deep problems with the Quebec public. “Vidéotron should stay in Quebec,” he says firmly, an attitude apparently shared by the powerful Caisse de dépôt placement du Québec, the provinces—and Canadas— biggest pension-fund manager, which holds a 10-per-cent minority voting stake in Vidéotron. Claiming it has a legal right to veto any deal, the Caisse has broken ranks with the Chagnon family, which built Vidéotron into Quebec’s largest cable operator and holds 71 per cent of its votes. Instead, the Caisse is trying to engineer a competing bid in conjunction with Montreal-based printing and publishing giant Quebecor Inc., a package of cash and shares they claim to be worth $5.9 billion. The result is as good a drama as anything L’Herbier ever put on the air: a feud at the highest levels of Quebec’s business class featuring allegations of betrayal, a whiff of political intrigue and enormous financial stakes, all headed for a courtroom showdown on April 18.
President and CEO: Pierre-Karl Péladeau
1999 revenue: $10.8 billion
Businesses: English and French newspapers, broadcasting, printing, forest products
Caisse de dépôt et placement du Québec
Chairman and CEO: Jean-Claude Scraire
1999 net assets: $81 billion
Operations: manages pension funds for Quebec civil servants and others
Businesses: Cable TV, video rentals, wireless communications, publishing, radio
Cable subscribers: 2.2 million
Caisse officials insist they are simply looking for a better deal, but the legion of skeptics is large
This, however, is reality TV, with real-life implications for Quebecers—not to mention the starry ambitions of cable mogul Ted Rogers, who is trying to put together a cable network that can compete for Internet supremacy against telephone behemoth BCE Inc. The fight for Vidéotron has become a broader test of whether there is any life left in the once-celebrated, now-unfashionable model of state capitalism in Quebec that built a stable of homegrown firms in the 1980s and early ’90s known as “Quebec Inc.” The Caisse has thrown its considerable weight into building local corporate champions, firms that became a source of pride to Quebecers almost the way the Montreal Canadiens did during their glory years. They sprang from the Caisses dual mandate for investing what has become Canada’s biggest stock and bond portfolio: generate good returns to help Quebec pensioners grow old gracefully, while seizing opportunities to promote the province’s economic “dynamism.”
But in recent years, as globalization’s tsunami washed over advanced economies everywhere, the Caisse seemed reluctant to fight the tide. It won government permission to ramp up the portion of its holdings outside Quebec, and dropped its overt Quebec chauvinism to talk more about returns on investment. In 1998, it permitted the sale of Provigo Inc., Quebec’s largest grocery chain to Ontario’s Loblaw Cos., which would have been unthinkable in its more interventionist era. That sale seemed to mark a turning point for the Caisse, proof that markets, not politics, now ruled.
The Vidéotron deal has conjured up all the old nationalist ghosts. The Groupe Vidéotron Ltée Chairman: André Chagnon Headquarters: Montreal 1999 revenue: $936 million Businesses: cable TV, broadcasting, telecommunications Cable subscribers: 1.45 million Sources: company reports Rogers Communications Inc. President and CEO: Ted Rogers Headquarters: Toronto 1999 revenue: $3.1 billion Businesses: cable TV, video rentals, wireless communications, publishing, radio Cable subscribers: 2.2 million Caisse protests loudly that tripping Rogers is nothing more than an attempt to scour for a better deal. But the legion of skeptics is large. It includes Bay Street money managers who sniffed political shenanigans and sold off Vidéotron stock (“it’s not often you get a competing offer for a takeover target and their stock goes down,” notes one Toronto banker sarcastically). And it includes Montreal’s business elite, who whisper—because most Montreal business people whisper when it comes to the Caisse—that the pension fund is up to its old political tricks. “There is always a prejudice against the Caisse based on the fact it’s under government control,” says Charles Sirois, one of Quebec’s top businessmen whose Telesystem Ltd. recently sold long-distance carrier Teleglobe to BCE Inc., and has its own long-standing relationship with the fund. Sirois acknowledges it is natural for anyone dealing with the Caisse to ask if politics is behind its behavior, though he won’t venture a guess about its motivation in the Vidéotron affair. “I don’t have the answer to that,” he says. “But it is fair to ask the question.”
Unfortunately for the Caisse, Jacques Parizeau provided his own candid answer as the war heated up. “Toronto buying Montreal,” was his analysis of the Rogers’ deal, which, given that Parizeau is a former premier and one of the founding fathers of the Caisse, did not pass unnoticed. Parizeau quarreled with those who argue it makes no difference who owns the cables that transmit television or Internet content. “It’s not a question of nationalism,” he declared. “It’s the character and identity of culture in the marketplace.”
That view resonates in nationalist circles, where suspicions remain about Rogers’ intentions for Vidéotron. They were perhaps best reflected in a recent column by respected political analyst Michel Auger in the well-read Journal de Montréal (a Quebecor paper). Auger accused Rogers of “systematically excluding French-language content every time it had the chance.” He cited its decision to drop several French-language channels from basic cable service in eastern Ontario, where significant numbers of francophones live, and the Rogers application to the Canadian Radio-television and Telecommunications Commission to keep the TVA network off basic cable outside Quebec (Rogers executives say they did so to avoid imposing channels on subscribers). Control of Vidéotron is about more than where your cable bill comes from, wrote Auger. “It’s about the future of the Internet in Quebec.”
Of course, Quebec is not the only jurisdiction where free markets are sometimes still tampered with. Even in the United States, the attempt by Canadian National to take over Burlington Northern Santa Fe Corp.’s railroads is currently on hold while the American regulator examines issues such as the “potential harm to American interests” of a cross-border purchase. Nor is Canadian nationalism a spent force. When Quebecor bought the Sun newspaper chain last year, Quebecers noted how prominent Toronto-based business columnist Diane Francis clamored for government to stop the sale on the basis of politics. “Separatists have absolutely no business buying media properties,” she wrote.
But for the most part, governments have recognized the futility of trying to prop up or protect companies from takeovers by outsiders. “State capitalism is dead, it’s over,” says international trade expert Alan Rugman, a Canadian who now teaches at Oxford University in England. Many observers argue the Internet industry is beyond control by its very nature. “The Caisse sees Vidéotron as a Quebec versus Canada thing, but the world is no longer a world of provincial or national boundaries,” argues Richard Schultz, a telecommunications expert at McGill University in Montreal. “Even the CRTC has concluded it can’t control content on the Internet.”
But the Caisses denials that it is playing politics (“we wish we could, but we cannot do anything about Mr. Parizeau,” said one Caisse official) collide with its history of interventions. Many Caisse-watchers see its last-minute legal pyrotechnics over Vidéotron as perfectly in keeping with its modus operandi. Rogers executives were aware of the contentious shareholder agreement between the Chagnon family and the Caisse, which gives the fund certain powers over major changes to the company (the courts will determine whether that agreement constitutes a veto). But both the Chagnons and Rogers allege the Caisse had signaled tacit support for the deal, especially after the Chagnons agreed to strip the TVA network, which Vidéotron owns, out of the sale to Rogers and keep it in Quebec hands. (The Quebecor bid includes TVA.) They also believe they had the Quebec government’s blessing. After Premier Lucien Bouchard and Finance Minister Bernard Landry met with executives from both sides on Feb. 7, Landry expressed satisfaction with the Rogers bid.
The Rogers and Chagnon sides were therefore outraged by the Caisses last-minute balk on the eve of the March 27 shareholders’ meeting called to approve the deal. One Montreal lawyer close to the Vidéotron side alleges the Caisses political masters got nervous about the prospect of losing another Quebec company. “They lost Provigo and then had a near-miss when Bell bought Teleglobe, because Teleglobe could have gone to any company anywhere,” he said. “It drives Landry’s generation crazy to see all those companies they nurtured being bought out.”
The Quebecor side argues its offer has nothing to do with politics. Those who know him say Quebecors chief executive, Pierre-Karl Péladeau, cares not a whit if the Caisses deep pockets are lined with fleurs-de-lis. He sees synergy in combining Videotrons cable network and TVA (which also controls the French-language Internet portal Netgraphe) with Quebecors print publications and the Canadian Internet portal Canoe. Péladeau says he is bent on turning Quebecor into a new media company, a Quebec version of AOL-Time Warner from which to leap into Europe. Associates say his reaction to the Rogers offer was joy that Vidéotron was in play. Despite the arrival of his firstborn at home, he has worked his usual punishing hours to pull a deal together ever since.
The markets will be happier when he does. So far, the Quebecor plan for Vidéotron is long on concept, short on particulars, and most analysts say they have no way of assessing its proper value. The Chagnons have already rejected it, as their legal agreements with Rogers require, although last week they said “other avenues” might also offer benefits. “If the Caisse can unlock the Rogers deal, then Quebecor will have to be more precise about its offer,” says Sirois. “Because at the end of the day, the Caisse will have to face the judgment of the market.”
Only then, most agree, will it become clear whether the Caisse is sincere about seeking a better value for its Vidéotron shares, or if this is the political play its critics claim. “I’ll warn them of one thing,” says Marc Cantin, a Montreal lawyer who was once Vidéotron’s in-house counsel and who remains a shareholder and friend of the Chagnon family. “The biggest mistake the Caisse could make would be to make a deal that isn’t clearly superior to Rogers’ offer, and rely on nationalist sentiment to do the rest for them. If they do that, they’ll lose. Because I’m a Quebec nationalist,” he says, a smile creasing his face. “But my nationalism starts at 6 o’clock at night over a bottle of wine. During business hours, I’ll take the best offer.”
Canada’s public pension fund managers control vast
pools of wealth awaiting payout to retirees. The top two stocks, by far,
held by each of the four largest funds are Nortel Networks and BCE Inc.
A snapshot of the big four, as of Dec. 31:
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