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Quebec Nationalism Factor in Buyout

March 28, 2000

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

But this fight has another element _ Quebec nationalism _ that could prove crucial.

An $3.8 billion merger with Rogers Communications of Toronto has been put on hold by a last-minute $4 billion offer from publishing giant Quebecor and Caisse, the Francophone province’s pension fund manager and most powerful financial investor.

Now a lengthy legal and boardroom battle for Videotron looms, a result analysts say of 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.″

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

Rogers is Canada’s largest cable television operator and cell phone company. It has partnerships with Microsoft and AT&T, is positioned to be the dominant cable and Internet provider in eastern Canada, and last week struck a deal with Western-based cable rival Shaw Communications that essentially divided the country between them.

The merger with Groupe Videotron announced in February, would secure access to the lucrative Quebec market.

But on Friday, the merger was blocked by a court order filed by Caise, which controls 19 percent of Videotron’s shares and has veto power over any corporate marriage.

Caisse, a quasi-governmental institution, 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, said the Videotron merger with Rogers makes more economic 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 a brief meeting to discuss the company’s future on Monday said they needed time to sort out the confusion created by the competing offers and court dealings.

``It will probably end up in a legal battle,″ said Marc Cantin, a former Videotron executive.


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