Maple Leaf Sports and Entertainment (MLSE), the owner of the Toronto Maple Leafs, Toronto Raptors, and several other sports properties, has been thrust into the middle of a partnership spat that could carry on for some time if Rogers Communications (CA:RCI.B) and BCE (CA:BCE) have their way.
In June, MLSE chairman Larry Tannenbaum notified the two companies that he was selling 20% of his family-controlled holding company, Kilmer Sports Inc., to the Ontario Municipal Employees Retirement System (OMERS) for $400 million. Kilmer Sports owns 25% of MLSE, while Rogers and BCE each own 37.5% of the entertainment conglomerate.
The National Hockey League’s executive committee has already approved Tannenbaum’s sale of part of his stake in MLSE. Based on the $400 million valuation for the 20% stake in Kilmer, MLSE is valued at $8 billion.
Rogers and BCE Have Done Well
Rogers and Bell paid $1.32 billion for their 75% joint-ownership position in MLSE in December 2011. Ironically, they bought their stake from the Ontario Teachers Pension Plan, which paid $180 million for the stake in 1994, equating to a compound annual growth rate (CAGR) of 12.43% over 17 years. Based on MLSE’s $8 billion valuation, the telcos’ CAGR over the past 11.5 years is 14.07%, an even better return over a shorter period.
One would think Rogers and Bell would be happy about this turn of events. Just the opposite. They’re challenging the sale. They sent a joint letter to Tannenbaum raising questions about the deal. For now, all parties involved are being tight-lipped about the situation.
When Rogers and BCE acquired their stake in 2011, they obtained the right to buy Tannenbaum’s 25% starting in 2026, based on a price established by industry experts. Because of the higher valuation for the 20% in Kilmer Sports, the two telcos will have to come up with a bigger check once the time comes to buy out Kilmer, OMERS, and Tannenbaum.
There’s almost zero chance they won’t exercise their right in 2026.
In the meantime, the Ottawa Senators recently sold for US$950 million, suggesting that MLSE could be worth $10 billion or more by the time 2026 rolls around.
Rogers and BCE are likely challenging the sale to avoid further escalation in the price they will ultimately have to pay for the remaining 25% they don’t already own.
Shareholders of Rogers and BCE ought to be very worried about the MLSE challenge because it will distract senior management from doing their jobs running two of Canada’s largest wireless carriers.
It’s Not a Good Look Given Job Cuts
BCE recently cut more than 1,300 jobs company-wide as it looks to reduce operating expenses in its media-related businesses. It also announced that it had sold three radio stations and shuttered another six as part of its efforts to rightsize the company.
The fact that it’s willing to cut jobs while spending on sports teams is not a good look with regular Canadians. By challenging the sale, it is putting more of a spotlight on this situation.
As for Rogers, it too is looking to cut its employee headcount after paying $20 billion for Shaw Communications.
The company is offering voluntary departure packages to employees as it works to eliminate any overlaps that may exist from the acquisition.
“I know the decision to participate in this program is a significant one. We will do everything we can to provide you with the information you need to help you make a thoughtful decision,” CEO Tony Staffieri wrote in a July 4 memo to employees.
Staffieri is one of the most highly-paid CEOs in Canada. His annual compensation in the past year rivaled Comcast (US:CMCSA) CEO Brian Roberts’ most recent annual compensation. Comcast’s revenue is 11x greater than Rogers.
To be sure, Rogers and BCE challenging Larry Tannenbaum’s right to exercise estate planning maneuvers could backfire on the two companies and their shareholders.
If you own either stock, you’ll want to monitor further developments.
This story originally appeared on Fintel.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
