Rogers is like Uber in its board conflict, this portfolio manager says

The turmoil at Rogers Communications (Rogers Communications Stock Quote, Charts, News, Analysts, Financials TSX:RCI.B) is nothing new, says David Baskin of Baskin Wealth Management, but it could be a problem for Rogers shareholders as the internal conflict comes at a particularly fraught moment for the Canadian telecom company with a proposed merger with Shaw Communications (Shaw Communications Stock Quote, Charts, News, Analysts, Financials TSX:SJR.B) still uncertain on whether it will pass regulatory scrutiny.

The Rogers’ family trust is reportedly holding an emergency meeting on Thursday to discuss putting limits on board chair Edward Rogers, son of the deceased Ted Rogers who was craftsman of the Rogers family media and telecommunications empire. Last week, news broke that Edward Rogers had made an attempt to replace Rogers President and CEO Joe Natale with now former chief financial officer Tony Staffieri. That move was reportedly rebuffed by board members along with members of the Rogers family. Board members also met earlier this week to discuss reining in Edward Rogers’ powers as the company tries to not only build out needed infrastructure to compete with the likes of Telus and BCE in the evolving telecom landscape but to push through the planned $26 billion Shaw deal.

Baskin says the threat of an executive shakeup at Rogers could make investors uncomfortable although such a move as not unheard of at companies the size of Rogers, which just reported its third quarter financials.

“It certainly doesn’t help the shareholders of Rogers who aren’t Edward Rogers when you see this kind of conflict erupt. It suggests that the chairman might attempt to oust those directors who don’t agree with him and replace them with more compliant directors and that might not be in the interest of the other shareholders of Rogers,” said Baskin, president of Baskin Wealth, who spoke on BNN Bloomberg on Thursday morning.

“I’m thinking right now about Uber, and, of course, at Uber famously the board of Uber kicked out its founder, and and largest shareholder and ousted him as CEO. Other companies have done the same. Expedia did the same and McDonald’s did the same. These board conflicts can end up very badly indeed,” he said.

Rogers’ share price rose steadily over the first half of the year, with the Rogers deal to buy Shaw first announced in March, but the stock has dropped over the last few months leaving it up about three per cent year-to-date.

Rogers missed analysts’ consensus estimate for revenue with its third quarter, where the Street was calling for a topline of $3.68 billion compared to the realized $3.67 billion. Earnings for the quarter were $490 million or $0.94 per share compared to $512 million or $1.01 per share a year earlier. The company added 175,000 in wireless postpaid net subscribers with 17,000 net new internet subscribers and 64,000 Ignite TV new subscribers. The company said its stable year-over-year revenue came with service revenue growth in Wireless and Cable but lower Media revenue and lower Wireless equipment revenue.

“Our Rogers team delivered strong results in the third quarter led by an ongoing recovery in our wireless business,” said Natale in a press release. “Each of our businesses is benefitting from the ongoing opening of the economy, and we expect to maintain this momentum as we finish the year.”

“Throughout the pandemic, we have continued to make significant investments in our customers and Canada, which has positioned us well to drive sustainable long-term growth. As we come together with Shaw, we will build on this foundation to bring next- generation connectivity to communities across Western Canada, helping to create jobs, attract investment, and increase economic growth,” Natale said.

Baskin said Rogers will need to put the internal conflict behind itself if it’s going to get the Shaw deal done, one which needs to be cleared by a number of Canadian regulatory bodies currently assessing its impact on competition and consumer pricing in the telecom space.

“If [the Shaw deal] gets approved — and that’s a big if — undoubtedly, it will require some alterations in the way Rogers does business. Some parts of the business will probably have to be sold off, and that’s going to require a deft hand at the controls,” Baskin said.

“So, certainly it would make you a little nervous if you thought that the chairman and the CEO were butting heads,” he said.

“It’s always interesting when these dynastic companies like Rogers and I think about Power Corp and Bombardier where strong willed sons of founders come into conflict with their boards,” Baskin said. “But I think the most important thing to understand is that the duty of a director of a board of a company is not to the Roger’s family or to the largest shareholder but to the company itself. And I think if the board of Rogers felt that the chairman was out of line, then they absolutely did the right thing [in opposing Edward Rogers].”