Maple Leaf Sports and Entertainment headquarters in Toronto on Sept. 18. Rogers Communications Inc. has agreed to acquire Bell’s 37.5-per-cent stake in MLSE for $4.7-billion.Yader Guzman/The Globe and Mail
Rogers Communications Inc. RCI-B-T has agreed to buy rival BCE Inc.’s BCE-T stake in Maple Leaf Sports & Entertainment with no financial backing from private investors or lenders, a “trust me” approach that will save millions in banking fees on its $4.7-billion acquisition.
On Wednesday, Rogers unveiled plans to become a powerhouse in sports by doubling its stake in MLSE – owner of the NHL’s Maple Leafs, NBA’s Raptors, CFL’s Argonauts and MLS’s Toronto FC – by acquiring Bell Canada parent BCE’s 37.5-per-cent interest. The transaction requires approval from regulators and professional sports leagues and is expected to close by the middle of 2025.
The moment the deal was announced, analysts began questioning how Rogers planned to pay for MLSE, after borrowing aggressively to acquire Shaw Communications Inc. last year for $20-billion.
The two telecom companies, partners at MLSE since 2012, signed a contract without any financing conditions, meaning Rogers is obligated to buy out Bell once the deal is approved.
However, Bell did not require Rogers to prearrange payment for the MLSE purchase, in the form of a bridge loan or other financing, a structure that is relatively common in large acquisitions, according to sources at Bell and three banks. The Globe and Mail is not naming these sources because they are not authorized to speak for the companies.
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Rogers, which has $40.6-billion of debt, stands to save millions of dollars in banking fees by waiting until the MLSE deal closes to arrange financing.
In 2021, Rogers secured a $19-billion bridge loan from New York-based BofA Securities to pay for its planned takeover of Shaw. Rogers paid fees on the facility and other loans for two years before the deal closed.
Rogers did not disclose specifics on how it will fund the MLSE purchase, but did say the transaction will not affect the company’s debt leverage. Rogers also said outside investors – wealthy individuals and institutions – are expected to be part of the final financing package. In a report, analyst Tim Casey at BMO Capital Markets said: “Our initial assumption is that the private investors will acquire an economic interest but cede voting control to Rogers.”
In an interview on Wednesday, Rogers chief executive officer Tony Staffieri said the final structure of the financing for the MLSE purchase will depend on Rogers’ balance sheet when the deal closes, as the company expects to aggressively pay down debt while seeking approval for the transaction.
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Telecom company Quebecor Inc. QBR-B-T also struck a “trust me” deal, with no conditions on financing, when it agreed to buy cellphone service Freedom Mobile for $2.85-billion in June, 2022, as part of Rogers’ takeover of Shaw. The deal closed in April, 2023.
Bell initiated the sale of its MLSE stake by reaching out to Rogers earlier this year and banking sources said Bell is clearly comfortable with its rival’s finances. Rogers has been steadily paying down debt since acquiring Shaw. When the deal closed, Rogers debt hit five times its earnings before interest, taxes, depreciation and amortization or EBITDA.
In December, Rogers sold its stake in Cogeco to the Caisse de dépôt et placement du Québec for $829-million and used the money to pay down loans, lowering its debt-to-EBITDA ratio 4.7 times.
Rogers expects to generate free cash flow of $2.9-billion to $3.1-billion this year, and will use this money plus cash from the planned sales of real estate and its data centres business to pay down debt.
Rogers’ debt will drop to 4.6 times EBITDA by the end of 2025, after paying for MLSE, according to analyst Drew McReynolds at RBC Capital Markets in a report on Thursday. Mr. McReynolds said if Rogers didn’t purchase the MLSE stake, its debt ratio would drop to 4.3 times EBITDA.
Rogers looked to law firm Davies Ward Phillips & Vineberg LLP on the MLSE purchase, while lawyers at Blake, Cassels & Graydon LLP advised Bell.