Rogers announces $7B sale of minority stake in regional backhaul infrastructure

Rogers Communications Inc. has announced a $7-billion-deal to sell a minority stake in part of its wireless backhaul infrastructure as it looks to lower its debt. Rogers CEO Tony Staffieri told analysts on an investors’ call related to the company’s third-quarter financials that the deal with a “leading global financial investor,” which Rogers has not named, is for $7 billion in structured equity financing to acquire a minority stake in some of the telecom’s wireless backhaul infrastructure. Rogers’ chief financial officer Glenn Brandt said the deal, about which some specifics have not been disclosed, should be considered a supply agreement. Brandt explained to analysts who pressed for more information on the agreement that the infrastructure involved transports data from Rogers’ towers to its core network, and that that movement itself is the business of transporting data. “We will maintain the network, as we always have – we'll continue to maintain it, invest in it. We control that investment. We control that operation of the infrastructure,” Brandt said. “This is simply setting up a supply agreement between a subsidiary and the operating company.” “The minority interest holders will earn a portion of the net income within that subsidiary, and there will be distributions paid from that net income and from the cash that settles between our operating company at Rogers and the subsidiary carrying the backhaul in this region,” Brandt said. “So there's no lease, there will be periodic distributions of available cash. They'll settle up and that's the business model.” Brandt sought to make it “very clear” to analysts that the business model is not to sell backhaul to other carriers. Rather, “this is a business that will continue to service Rogers exclusively,” he said. Brandt emphasized that Rogers will still have full operational control of all of its wireless business, and that cell towers and spectrum holdings are not part of the deal. Brandt said the agreement is based on tiered wholesale rates. As data traffic grows, the tiers will adjust. He said that Rogers’ data traffic grows by 40 to 50 per cent annually. “The returns to the investor, the minority investor coming in, are based on that traffic,” Brandt said. “We have the forecast worked out based on historic and expected growth rates to set up that business and the volumes that it will drive, the revenue that it will drive, the expenses that are expected for operating it, and the distributions out to the minority investor and back up to RCI as the controlling shareholder,” he said. National Bank of Canada analyst Adam Shine estimated in a note following the call Thursday that distributions to the minority investor will be in the range of $400 million. The goal of the agreement is to see the proceeds pay down Rogers’ debt and strengthen its balance sheet. The company’s debt leverage ratio was 4.6 as of Sept. 30. It expects that number will be 3.7x by year-end. Staffieri noted to analysts that this puts Rogers “well ahead” of its 4.2x target. Brandt reportedly told analysts on the first quarterly earnings call of this fiscal year that the company was selling its data centres to raise money as it worked to pay off debt related to its merger with Shaw Communications Inc. When it purchased BCE Inc.’s stake in Maple Leaf Sports and Entertainment (MLSE) – owners of the Toronto Maple Leafs and Toronto Raptors sports teams – in September, Rogers said the financing necessary for that purchase would not affect its debt leverage and that financing would include private investors. With the sale, Rogers becomes the majority owner of MLSE with a controlling interest of 75 per cent. As for this latest agreement for a minority stake in part of its wireless backhaul infrastructure, Brandt said a specific time-length term has not been set, and that there are no guaranteed minimum distributions for the investor. “We will have full control over how long this investment remains in place and we’ll determine that in the fullness of time with the needs of our balance sheet,” Brandt said. CEO Staffieri noted that the deal does not affect the majority of Rogers’ infrastructure. “This is not even the majority of our wireless backhaul infrastructure on our balance sheet, and we sold it for $7 billion of equity interest,” he told one analyst. “We control the operations. You’re right to acknowledge these assets aren't non-core, they're core, and that's why we will maintain control.” Third quarter results Total revenues in Rogers’ third quarter of 2024, ended Sept. 30, were almost $5.13 billion, up one per cent from the just over $5.09 billion it reported for the third quarter of 2023. The company saw combined mobile and internet net additions of 227,000 for the quarter. Rogers’ wireless revenues were $2.62 billion, up one per cent from more than $2.58 billion the year prior. Its operating costs were down three per cent, from $1.29 billion in Q3 2023 to $1.25 billion this quarter. The company’s net postpaid mobile phone adds were down by 124 per cent at 101,000 adds, compared to 225,000 net adds in the same period last year. It has a total of almost 10.7 million postpaid mobile phone subscribers, up from 10.33 million in Q3 2023. Prepaid mobile phone net adds were up 57 per cent to 93,000 this quarter, rising from 36,000 in the same period last year. Total prepaid subscribers hit 1.16 million, a drop from nearly 1.28 million in Q3 2023. Mobile monthly average revenue per user (ARPU) was $58.57, down 26 cents from the same quarter in 2023. Cable revenue was $1.97 billion for the quarter, down one per cent from $1.99 billion in Q3 last year. The company’s media revenue was up 11 per cent to $653 million from $586 million, attributed to higher sports-related revenue. Rogers’ profit skyrocketed to $526 million for the quarter, up from a loss in the third quarter of 2023. The company noted that change was primarily due to the $422 million loss it recognized last year related to an obligation to purchase, at fair value, the non-controlling interest in one of its joint ventures’ investments and other factors. Rogers calculated its adjusted net income to be $762 million, a jump of 12 per cent from $679 million in Q3 2023. Adjusted EBITDA was more than $2.54 billion, up six per cent from $2.41 billion last year. Rogers Centre Ottawa Meanwhile, the Ottawa Convention Centre announced a change to its name Wednesday, Oct. 23. Effective immediately, what was last the Shaw Centre is now to be known as the Rogers Centre Ottawa. The convention centre announced in a press release Wednesday that it signed a ten-year naming rights agreement with Rogers. Its website already reflects its new moniker, and internal and external signage are to be updated in the coming months. hdaley@thewirereport.ca

Rogers announces $7B sale of minority stake in regional backhaul infrastructure

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By Hannah Daley
| October 24, 2024

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