Quebecor buys back Caisse’s stake in media division for $1.69 billion

Quebecor Inc. chief executive Pierre Karl Péladeau said Tuesday his company will have “complete control over (its) destiny” after signing a $1.69-billion deal to buy back the final chunk of its main subsidiary from the province’s largest pension fund.

The Montreal-based communications giant announced the transaction with the Caisse de dépôt et placement du Québec, marking the end of 18 years of joint ownership of Quebecor’s operating arm. Analysts commended the long-awaited move that should enable Quebecor to invest in growth instead of paying back the Caisse.

Indeed, investors will almost immediately be rewarded for the company’s solid cash position, with Quebecor simultaneously announcing it will double its quarterly dividend to 5.5 cents per share once it regains full ownership.

“By gaining access to 100 per cent of the cash flows that it generates, Quebecor will now be better equipped to seize business opportunities that arise,” Péladeau said in a statement.

While Péladeau didn’t hint at any imminent plans to spend the cash, he did credit the company’s strong financial footing for the ability to repurchase the 18.5 per cent stake with $1.5 billion in cash and $150 million in convertible debentures. Last summer, Quebecor sold more than $614 million of wireless spectrum. The cash influx left analysts questioning when it would buy back its shares from the Caisse.

Quebecor originally joined forces with the Caisse in 2000 to thwart its Toronto-based cable rival Rogers Communications Inc.’s attempt to buy Videotron Ltée, the largest cable operator in Quebec. With the investment from the Caisse, which bought a 45 per cent stake in Quebecor Media, the duo ultimately purchased Videotron for $5.4 billion.

“In doing so, we allowed Quebecers to retain control over their technological and cultural levers, while generating substantial benefits for our entire community,” Péladeau stated, pointing to a $2-billion investment in wireless networks and 4,000 new jobs at Videotron over the past 15 years.

Since the acquisition, Videotron’s operations have fuelled Quebecor’s growth. Its cable, wireless, internet, telephone and over-the-top video services bring in more than three-quarters of the company’s total revenue, according to financial statements.

In 2012, as its wireless business started to take off, Quebecor announced plans to buy back its stake from the Caisse. It previously bought two major tranches.

“While the street had largely expected the deal to occur this year, we believe it should still be a big positive, particularly given the dividend policy coming earlier than expected,” Barclays analyst Phillip Huang said in a note Tuesday.

RBC analyst Drew McReynolds said the buy-back price of about eight times adjusted earnings is reasonable compared to the last major transactions, which were purchased at 8.3 times and 7.4 times adjusted earnings. He estimates Quebecor’s net debt to adjusted earnings ratio will be at about 4.0 after the transaction, which is consistent with the company’s goals.

The transaction will close June 22 pending regulatory approval.

Quebecor also released its first-quarter results for the three months ended March 31. While subscriber volumes were lower than expected, financial performance beat analysts’ expectations. It added 23,300 wireless subscribers, 8,100 internet subscribers and 21,800 subscribers to Club Illico, it’s online video streaming service. It lost 15,000 cable subscribers.