TORONTO - Rogers Communications Inc. is selling a minority stake in a portion of its wireless network infrastructure for $7 billion amid a "pivot" in strategy as it seeks to pay down debt.
The transaction, which is expected to close in the fourth quarter, involves a "leading global financial investor" that will acquire a minority interest in the infrastructure that transports data from Rogers' cell towers to its core network.
The company announced the deal Thursday as it reported its third-quarter earnings, with a profit of $526 million compared with a loss a year ago.
Chief financial officer Glenn Brandt said Rogers would maintain full operational control for its entire national wireless network under the agreement. Neither its cell towers nor spectrum holdings are involved in the deal, Brandt told analysts on the company's conference call.
He added that Rogers plans to use the $7 billion received from the unidentified investor to pay down a "corresponding amount" of debt.
To further its savings, the Toronto-based telecommunications company had previously announced plans last year to sell up to $1 billion of non-core assets, primarily consisting of surplus real estate, by the end of 2024.
Brandt acknowledged that Rogers hasn't yet reached its target on that front, but noted "we're not desperate."
He said the company has pivoted amid current economic conditions.
"(It) wasn't ever going to be a fire sale in the interest rate environment," he said.
"We've had to take a pause on that. I think what we've shown is strong flexibility around adjusting our strategy."
Rogers, which also divested its stake in Cogeco in December 2023 for $829 million, is "showing a very dedicated, driven intent to de-lever and continue to invest and grow," Brandt said.
"In terms of ... the non-core real estate assets, that remains a work in progress. I've grown weary of explaining each quarter that we're on it and it'll come," he said. "I'm not chasing a market that's disinterested and so we will adjust accordingly."
The magnitude of the backhaul infrastructure deal reflects "how valuable the assets that the Canadian telcos are sitting on," Scotiabank analyst Maher Yaghi said.
"We have been very vocal about the need for Canadian telcos to shed assets to improve their (return on invested capital) which has been on a declining trend in the last 10 years," he said in a note.
"We will likely see other deals in Canada from other companies going in the same direction in order to de-lever the balance sheets and transform the business toward a much more focused retail operation that is less prone to impacts from regulators."
Yaghi said equity investors are not properly valuing assets owned by Canadian telecoms such as sports franchises, fibre networks and backhauling infrastructure, which "are worth a lot more to private equity investors if structured properly."
The past quarter also saw Rogers announce a $4.7-billion deal to acquire rival telecom BCE Inc.'s 37.5 per cent stake in Maple Leaf Sports & Entertainment. The move, expected to close next year, will give Rogers a majority control of the Toronto Maple Leafs, Toronto Raptors, Toronto Argonauts and Toronto FC.
"As Canada's communications and entertainment company, live sports and entertainment are core to our business strategy," said Rogers president and CEO Tony Staffieri.
"It's a significant step in our long-term plan to surface more value for our shareholders."
Rogers said its profit for the quarter ended Sept. 30 amounted to 98 cents per diluted share. The result compared with a loss of $99 million or 20 cents per diluted share in the same quarter last year.
Revenue for the quarter totalled $5.13 billion, up from $5.09 billion a year earlier.
On an adjusted basis, Rogers said it earned $1.42 per diluted share in its latest quarter, up from an adjusted profit of $1.27 per diluted share a year ago. Analysts on average had expected a profit of $1.36 per share, according to LSEG Data & Analytics.
Meanwhile, Rogers said its net increase in postpaid mobile phone subscribers totalled 101,000 for the three-month period, down 55.1 per cent from 225,000 net additions recorded the same period last year.
Rogers' monthly churn for net postpaid mobile subscribers — a measure of those who cancelled their service — was 1.12 per cent, up from 1.08 per cent during its previous third quarter.
The company fared better in the prepaid market, with 93,000 net additions in the quarter, an increase of 158.3 per cent from the 36,000 net increase in subscribers in the third quarter of 2023.
"The market was competitive during the seasonally busy back-to-school period, and we effectively used our Chatr brand to gain customers in the new-to-Canada market," said Staffieri, referring to Rogers' discount subsidiary under which it has consolidated all prepaid customers.
Rogers' mobile phone average monthly revenue per user fell 26 cents to $58.57, down from $58.83 in the third quarter of the prior year.
This report by °µÍø½ûÇø was first published Oct. 24, 2024.
Companies in this story: (TSX:RCI.B)
