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Canada’s telecommunications giants may be looking to sell non-core assets as price wars shrink their earnings growth, with everything from cell phone towers to ownership stakes in the Toronto Maple Leafs and Raptors possibly on the block, analysts at CIBC say.
“In a lower-growth environment, we see an opportunity for the Canadian telecom companies under coverage to deleverage and optimize operations by pursuing one or more divestiture opportunities,” the analysts wrote in a recent update.
Financial industry consensus on revenue and earnings at Rogers Communications (RCI-B.TO), BCE (BCE.TO) and Telus (T.TO) is at or below the low end of those companies’ guidance ranges, CIBC says. Debt “remains elevated” for those firms as well as Quebecor (QBR-B.TO) and Cogeco Communications (CCA.TO), with interest rates still high, the analysts say.
The CIBC report takes inventory of the telecoms’ non-core assets, finding billions of dollars in potential value across infrastructure, real estate and other holdings. Rogers “aims to divest ~$1B of non-core assets, primarily real estate,” CIBC notes, while BCE recently sold off Northwestel to a consortium of Indigenous communities for $1 billion.
CIBC says Rogers is unlikely to drop its half of the 75 per cent stake in Maple Leafs Sports and Entertainment (MLSE) it purchased with BCE in 2012. But BCE is “potentially a more motivated seller,” they say, highlighting recent executive commentary suggesting a sale would at least be considered. Larry Tanenbaum’s sale last year of a five per cent indirect stake in MLSE to OMERS implied a total value of $10.9 billion, CIBC says, while Forbes’ estimates put it closer to $10.3 billion. At that lower estimate, BCE’s stake would be worth $3.9 billion.
Rogers considers its sports holdings to be core assets, CIBC’s analysts say, and they note the company executives’ explicit enthusiasm for the synergies between their sports and media assets. “We like those businesses and we like the appreciation and the asset values there,” a Rogers executive was quoted as saying last March.
The Canadian policy landscape around media makes selling those assets, by any telecom, even more unlikely, CIBC says. “With the dominant media players in Canada being the telecoms themselves and given the industry is regulated, we do not view media assets as a likely choice for divestiture.”
Similarly, CIBC doesn’t see BCE and Telus selling off their fibre infrastructure “given perceived competitive advantages in the Canadian wireline market,” despite widespread global activity of this nature.
Not so for towers, where CIBC notes the global trend has been for telecoms to sell off those assets to infrastructure companies. Tower assets in the U.S. and Mexico are now 97 per cent owned by infrastructure companies, the analysts say, pointing out that Verizon is currently seeking to sell several thousand towers for US$3 billion. CIBC estimates there are around 25,500 macrocell towers across Canada, with Rogers, BCE, Telus and Quebecor collectively owning around 80 per cent of them.
Tower sale prices have varied widely, CIBC says, “driven by differences in the tower portfolios, including those related to geography, tenancy ratio, leasing rates and leaseback arrangements.” By mapping out different variables, the analysts found that Rogers’ towers are likely worth between $2.3 billion and $7.1 billion; BCE’s between $1.4 billion and $4.5 billion; and Telus’ between $1 billion and $3.1 billion.
Telecom companies around the world have also been unloading data centres, CIBC says, with current timing favourable given growing demand driven by processing needs for artificial intelligence. BCE, Quebecor and Cogeco have previously sold data centre assets for $780 million, $200 million and $527 million, respectively (figures in U.S. dollars). Today, CIBC says, Rogers’ 20 data centres could be worth between $0.6 billion and $1.7 billion, and Telus’ seven data centres between $200 million and $600 million.
Although most of the major telecommunications companies have the bulk of their operations in Canada, Cogeco’s U.S. assets might be a sale possibility, CIBC says. “We consider Cogeco’s Ohio and Florida assets as potential divestiture targets,” the analysts wrote.
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.
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