Tussle Sparks Canadian Corporate Soap Opera

VANCOUVER -- Much like the relationship between New York and Los Angeles, the rivalry between the Great White North's two largest cities, Toronto and Montreal, transcends the typical traits of civic pride. The cities represent the respective focal points of English- and French-speaking Canada, giving way to a linguistic divide that has always antagonized the country's cultural landscape.

While the tension has historically been most pronounced in the political arena -- and occasionally hockey arenas -- it's the New Economy sweepstakes that have seen the most recent wave of skirmishes between the two towns. The two cities will be competing for equity supremacy as the Toronto Stock Exchange faces Montreal's looming Nasdaq Canada. And two of the country's largest media concerns, Toronto-based Rogers Communications (RG) and Montreal-based Quebecor, now find themselves locked in a duel to scoop up one of Canada's most sought-after assets, Quebec media giant Le Videotron Groupe.

The game of cat and mouse has kept lawyers busy, executives feisty and shareholders bewildered. On Wednesday, the soap opera continued unabated, as Rogers said it would ask a Quebec court to lift an injunction motion -- obtained in April by Quebecor's ally, public pension fund Caisse de depot et placement du Quebec -- that prevents Videotron's controlling shareholder, the Chagnon family, from accepting Rogers' earlier bid. On the same day, Videotron reconfirmed its support for the Rogers bid, though it claims to have been egged on by the Ontario firm.

Rogers, a cable behemoth that dubs itself "Canada's national communications company," is indeed an icon in English Canadian business circles, and the firm would love to acquire Videotron's impressive lineup of cable, telephony and Internet holdings. It has already made one stock-swap bid for the company, although that effort was trumped by Quebecor. During the past year, Rogers has been aggressive in its deal-making with media firms the world over, including AT&T (T) and British Telecommunications (BTY).

The times haven't been as good for shareholders or owners of Rogers-invested mutual funds such as (JAWWX)Janus Worldwidefund and (MAGGX)Merrill Lynch Global Growth fund. The company's growth hasn't translated into growing fortunes for the stock. Shares have toiled away since the spring, and currently trade at about 25, smack-dab in the middle of its 52-week range of 14 7/8 and 34 1/2.

Quebecor hasn't fared much better. The firm's stock, which is listed on the Toronto Stock Exchange, currently trades at about C$35 ($23.69), roughly the bottom of its 52-week range of C$34 to C$62. Shares, dogged by news of layoffs at its Canoe Internet property, dropped more than 4% on Tuesday alone.

Growth is very much a high priority for Quebecor, which itself is a pillar of Quebec's business establishment. And just as it is for Rogers, Videotron is shaping up to be a key component for Quebecor's business strategy. For the latter, with its plethora of printing and newspaper holdings, the acquisition would fit perfectly with its plans to deliver content via a variety of media.

"We believe that we have every important part of a fully integrated media company, but there is one component missing: the pipe," says Quebecor spokesperson Luc Lavoie. "It would be a good complement to the package of communications organizations we have under our umbrella."

Both companies, driven by New Economy pressures, big egos, and a need to deliver to shareholders, appear hellbent on winning this civil war.

Together with the Caisse, Quebecor has made the most recent overture to Videotron: a $3.3 billion, all-cash takeover bid. Last week, Quebecor CEO Pierre Karl Peladeau was forthright with reporters about his desire to unhinge Videotron's earlier merger agreement with Rogers, a stock swap worth about C$38.50 a share. Shares of Videotron, which also list on the Toronto Stock Exchange, currently trade at about C$42.

"We are offering Videotron the possibility of achieving a higher level of development," Peladeau said in a statement.

Videotron officials weren't available for comment on the Quebecor offer.

Once the offer is formally in Videotron's hands, the ball will be back in Rogers' court. The latter has the funds available to pull the trigger on a better deal for Videotron, but concerns are swirling over a higher bid. Sentiment on Bay Street, Toronto's financial district, has it that the offer by Quebecor is already fully valued.

"Nobody's sure what they [Rogers] are going to do," says Toronto-based analyst John Grandy of brokerage Yorkton Securities. "For Rogers to step up higher would be a real stretch. It makes good sense for them to buy Videotron, but not at any price." Grandy has a strong-buy rating on the stock, and a target price of C$50. Yorkton does not have an underwriting relationship with either company.

For a company used to getting its way, Rogers can't be pleased about the strong arm tactics coming out of la belle provence.

"We're waiting [for the bid to be presented to Videotron shareholders]," says Richard Harvey, director of investor relations at Rogers. "We'll determine our response when we're required to."

Videotron shareholders, whose fortunes continue to mount, can't help but lap up the standoff north of the border. Investors in Rogers and Quebecor, meanwhile, will look forward to the inevitable breakthrough in l'affaire Videotron -- but not the inevitable cultural grudges that will arise from it.

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