Rogers plans minority stake sale in $25B sports empire to cut debt
The telecom giant will sell up to 30 percent of its combined sports holdings, which include the Maple Leafs and Blue Jays, to reduce its $40-billion debt load.
TORONTO — Rogers Communications Inc. plans to sell a minority stake in its newly consolidated sports empire, worth more than $25 billion, to pay down its $40-billion debt and protect its credit rating.
The telecom giant this month closed its $4.35-billion deal to purchase Kilmer Sports Inc.'s stake in Maple Leaf Sports & Entertainment, giving it full ownership of the Toronto Maple Leafs, Toronto Raptors, Toronto FC, the Toronto Argonauts and Scotiabank Arena.
Rogers will combine those assets with the Toronto Blue Jays, the Rogers Centre and its Sportsnet division into a single entity called Rogers Sports.
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"We think it's going to be a game changer and a real value differentiator for us in the Canadian landscape," Rogers CEO Tony Staffieri said in an interview.
He said the company's recent spending, which also includes the $20-billion acquisition of Shaw Communications and an $11-billion deal for NHL broadcast rights, fulfills a long-term vision.
Rogers now plans to sell as much as 30 percent of the combined sports holdings, with the proceeds dedicated to reducing its long-term debt.
The company's senior unsecured debt is rated just one notch above noninvestment grade by major rating agencies.
In late September, S&P warned it could downgrade the company's debt rating next year if it fails to lower its leverage below an adjusted ratio of four times debt to earnings before interest, taxes, depreciation and amortization.
S&P expects Rogers to end 2026 with a ratio of 4.6.
Staffieri said he expects Rogers will reach a leverage ratio of between 3 and 3.5 within the next 12 months.
"We're feeling very good, very optimistic and very confident about our ability to deliver that," he said.
Many analysts agree the company will raise adequate funds from the sale, with some estimating proceeds of as much as $7.5-billion.
TD Securities analyst Vince Valentini said in an October note that Rogers is not getting proper credit for its sports assets in its current share price.
He believes there is $7.5-billion of potential hidden value within Rogers's enterprise value, which works out to approximately $13 a share.
Cormark ATB analyst David McFadgen agrees the stock is currently "significantly mispriced" and has a $74 target for it.
Veritas Investment Research analyst Liam Gallagher said he believes Rogers will be able to raise what it needs, but noted any potential buyer knows Rogers has to sell.
"I don't think that gives them the best negotiating leverage at the table," he said.
Some investors are focused on the cash flow of the sports business rather than its resale value.
"Our concern is not the quality of the assets, but the cash-flow profile," said Rebecca Teltscher, a portfolio manager for Newhaven Asset Management Inc.
She said the combined sports assets "do not generate meaningful free cash flow" after expenses, making the investment case dependent on Rogers's ability to convert that value into cash through future sales.
Rogers shares closed at $42.46 on Friday, down more than 28 per cent over the past five years.
With files from The Globe and Mail