The court ruling may have resolved one issue but many more still swirl around telecom company Rogers Communications (Rogers Communications Stock Quote, Charts, News, Analysts, Financials TSX:RCI.B), including who will lead the company into the proposed merger with rival telco Shaw Communications (Shaw Communications Stock Quote, Charts, News, Analysts, Financials TSX:SJR.B).
But while that path ahead remains unclear, Roger’s fundamentals along with those of a proposed Rogers/Shaw combo are positive, according to Ross Healy of MacNicol & Associates Asset Management, who thinks investors should be greeting the current moment as a buying opportunity.
“The market doesn’t like uncertainty and, of course, [Rogers’ stock] has sold off awaiting the outcome of the case, although I doubt that anything radical is going to change,” said Healy, speaking on a BNN Bloomberg segment on Friday. “However, if you get the Shaw acquisition onside, there is a place where the return on equity of Shaw is about 12 per cent whereas the return on equity of Rogers is over 18 per cent. So, there’s a lot of room for improvement. Indeed, for whomever gets control of that company there is going to be an improvement in the returns just by lifting Shaw up.”
Son of the late Ted Rogers, Edward Rogers has resumed control of the company after a BC court ruled on Friday that as board chair and head of the Rogers family trust, which controls 97 per cent of class A voting shares for Rogers Communications, Edward has the power and right to replace five independent board members with his own preferred candidates.
The events unfolded over the past month as Edward initially made a move to oust current CEO Joe Natale and replace him with now-former CFO Tony Staffieri. Edward had reportedly argued that under Natale’s watch RCI had lagged its competitors, repeatedly missed budgets and saw its share price suffer. The drama engulfed the Rogers family where three members, matriarch to the family Loretta Rogers as well as her two daughters, sit on the board along with Edward but took up opposition to Edward’s plan to replace Natale.
“My thoughts are that this is kind of much ado about nothing insofar as there doesn’t appear to be any reasons for Edward’s action in attempting to change management yet again,” said Healy.
“Let’s just look at it from a dispassionate point of view the return on equity of this company is the highest in the Canadian telecommunications industry. Secondly, when you look at its valuation in price-to-book terms, it also enjoyed — at least before this little setback — about the highest valuation in the telecommunication industries. Now, when you enjoy this high-market valuation, of course, and are using it to expand your reach through the acquisition of Shaw it makes great sense from a capital markets and a business point of view,” he said.
Rogers’ share price has been dropping since about July and was down about five per cent year-to-date as of late October. The stock fell almost two per cent on Friday but is trading up early on Monday morning.
A statement released by Loretta Rogers and her two daughters on Friday evening said the ruling “represents a black eye for good governance and shareholder rights and sets a dangerous new precedent for Canada’s capital markets by allowing the independent directors of a public company to be removed with the stroke of a pen.”
On Sunday, Rogers Communications put out a press release saying it won’t appeal Friday’s BC Supreme Court ruling.
Meanwhile, Edward Rogers’ statement after the court ruling seemingly called for unity among the dissenting factions, saying, “Much has been written about Rogers CEO Joe Natale and his future. Mr. Natale remains CEO and a director of Rogers Communications and has the Board’s support.”
But Healy thinks the damage is done in that once again, conflicts between the Rogers family and the company’s top brass have left investors uncertain about the direction Rogers will take.
“One of the things that I wonder about is that Edward has not laid out any vision for the company using his proposed new management structure,” Healy said. “I remain mystified as I think of all of us do as to his real motives for change and his assertions of inadequate returns. They make no sense in terms of the actual performance of the company, which leads me to the concern that this is an issue of ego and not economics. But that’s a bottomless pit of endless speculation.”
“As a shareholder — and my clients are shareholders as part of our model portfolio — I’m annoyed that the sock has had this sell off, but I also think that when the waters smooth it’s probably is a great opportunity to buy some more shares,” he said.