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Quebec Nationalism a Corp. Factor

March 28, 2000

TORONTO (AP) _ The corporate takeover battle for Groupe Videotron has all the classic elements _ competing bids for the major cable television provider, a court order and confused shareholders.

But another aspect of the fight for Groupe Videotron, perhaps the major one, is Quebec nationalism.

A last-minute offer by publishing giant Quebecor and Caisse, the Francophone province’s pension fund manager and most powerful financial investor, has put on hold the previously announced $3.8 billion merger of Groupe Videotron with Rogers Communications of Toronto.

Instead of voting Monday to become a major player in the Rogers strategy to be the dominant cable and Internet provider in eastern Canada, Groupe Videotron shareholders _ mostly the Chagnon family _ adjourned the meeting to comply with a court order obtained by Caisse.

Now a lengthy legal and boardroom battle for Group Videotron looms, and analysts say the most logical explanation is the desire of Caisse and Quebecor to prevent control of such a major industry from moving outside Quebec.

``There’s no doubt that there’s a political aspect to this counterbid,″ said Mary Anne DeMonte-Whelan, a vice-president and senior telecom analyst at BLC Securities of Toronto. ``They want to keep what they consider to be a very precious Quebec-based asset in Quebec.″

The Quebecor-Caisse proposal would keep Videotron as the dominant cable television service in Quebec, while Rogers is Canada’s largest cable television operator and cell phone company, and has partnerships with global technology giants Microsoft and AT&T.

On the surface, the issues involve a race by Canadian providers to corral the home Internet market.

Faced with moves by BCE of Montreal to provide Internet service through its huge telephone system, Rogers pulled off a series of deals this year to position itself as the dominant provider in eastern Canada.

It announced the merger with Groupe Videotron in February, securing access to the lucrative Quebec market, and last week struck a deal with Western-based cable rival Shaw Communications that essentially divided the country between them.

On Friday, Quebecor and Caisse announced their $4 billion offer for Groupe Videotron, and Caisse obtained a court order delaying a vote by the Chagnon family _ the majority shareholders _ on approving the Rogers bid until at least April 3.

Caisse holds 19 percent of Videotron’s shares, with the Chagnon’s controlling the rest. Under a 1985 agreement, the Chagnon family gave Caisse veto power over any merger involving Videotron.

Claude Chagnon, the Videotron chief executive, said in weekend interviews the company will fight the Caisse court order. He called Caisse’s maneuvering an abuse of power.

Jean-Claude Scraire, Caisse’s chairman and chief executive officer, told the Globe and Mail newspaper that growth and profits, not politics, motivated the counterbid for Videotron.

``We see the creation of a kind of AOL/Time Warner of the north, integrating content, cable access and Internet portals,″ Scraire said. ``People will think about the fact that Quebecor and Videotron are based in Montreal. But we are backing this because we have a better project, a better offer, with better potential.″

Caisse, a quasi-governmental institution as the province’s pension manager, has a history of exerting influence to protect Quebec business interests. It was started in the mid-1960s by Jacques Parizeau, who later became Quebec premier as head of the nationalist Parti Quebecois.

Mel Fuss, an economics professor at the University of Toronto, noted the Videotron merger with Rogers makes more sense than the Quebecor proposal.

``There must be some notion here that they would like to keep this in Quebec with Quebec ownership,″ Fuss said of the Quebecor-Caisse offer.

Shareholders who attended Monday’s brief meeting said they needed time to sort out the confusion of competing offers and court dealings.

``It will probably end up in a legal battle,″ said Marc Cantin, a former Videtron executive. ``There were more lawyers and journalists here today than shareholders.″


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