Cogeco to buy fellow Quebec cable, internet provider DERYtelecom for $405 million

MONTREAL — Cogeco Communications said Wednesday it plans to buy DERYTelecom for $405 million, adding about 100,000 internet and cable customers in its home province of Quebec.

Based in Saguenay, a regional hub with about 145,000 residents, DERYtelecom serves more than 200 municipalities including Estrie, Lanaudiere, and Monteregie.

"As a Quebec-based company which is committed to its employees and its regional communities and with a history similar to ours, Cogeco presented itself as the best possible partner for us," Bryan Godbout, DERYtelecom's president, said in a joint statement.

Cogeco said DERYtelecom is a "strong strategic fit" with presence in areas adjacent to markets served by Cogeco Connexion, which has internet and cable systems stretching from Windsor, Ont., to the Gaspe region in eastern Quebec.

"DERYtelecom's customer base and networks are complementary to those of Cogeco Connexion and we know that together, bolstered by the core values that we share, we can augment the service offering, increase the customer base and deliver superior revenue growth," said Frederic Perron, president of Cogeco Connexion.

The definitive friendly agreement between two of Quebec's largest internet and cable providers is the latest twist in an ongoing battle for customers in Canada's second-most populous province.

Cogeco Communications and its parent Cogeco Inc. are themselves the target of unsuccessful joint takeover attempts by Rogers Communications and Altice USA.

Rogers wants to buy the Canadian portion of the Cogeco business while Altice wants Cogeco's operations in the eastern United States.

They most recently announced on Sunday that Altice had raised its offer for all of Cogeco to $11.1 billion cash, with a side deal to sell the Canadian portion of the business to Rogers, which has a major investment in Cogeco but less voting rights than the Audet family, which has a controlling stake through holding company Gestion Audem.

However, the offer was immediately rejected by the Audet family, and again on Tuesday in a unanimous vote of the boards of directors at the two publicly traded Cogeco companies.

Cogeco Communications CEO Philippe Jette said Wednesday that the Montreal-based company has a history of acquisitions since it was founded by the Audets in Trois-Rivières, Que., in the 1950s.

"Our proven track-record in the successful integration of regional cable businesses, having acquired five companies in the U.S. and Canada over the past five years alone, demonstrates our commitment to bring superior connectivity to regional and rural communities," he said.

Cogeco estimates it can achieve about $3 million in operational savings over the first year after closing with DERYtelecom, plus gain $40 million of tax benefits.

The transaction is expected to close by February 2021, subject to regulatory approvals.

Analyst Aravinda Galappatthige of Canaccord Genuity wrote in a research note Wednesday that Cogeco's rationale for buying DERYtelecom "makes sense" but lowered its price target for Cogeco Communications to $117, after raising it to $119 following the Altice-Rogers bids.

Cogeco Communications subordinate voting shares closed on Wednesday at $99.44 on the Toronto Stock Exchange.

This report by The Canadian Press was first published Oct. 21, 2020.

— By David Paddon in Toronto

Companies in this story: (TSX:CCA, TSX:CGO, TSX:RCI.B)

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