Wall Street powerhouse Blackstone is mystery bidder for $7-billion Rogers investment

Blackstone Inc. BX-N is the mystery investor bidding $7-billion for a minority stake in Rogers Communications Inc.’s RCI-B-T cellphone infrastructure business, after the Wall Street asset manager won a hotly-contested auction of the business this fall.

On Oct. 24, Rogers announced it had struck a non-binding agreement to sell a portion of its wireless backhaul network, which connects cellphone towers to the company’s core network, to an unnamed “leading global financial investor.”

New York-based Blackstone is the potential buyer, according to two sources familiar with the transaction. The Globe and Mail agreed not to name the sources because they are not authorized to speak for the companies. Rogers and Blackstone declined to comment.

Blackstone and Rogers are using a financing structure modelled on a series of deals done by asset manager Apollo Global Management Inc. APO-A-N. The transactions create stand-alone businesses out of internal operations which generate reliable cash. When Rogers announced its plans earlier this month, chief executive officer Tony Staffieri said: “This structured financing transaction is the first of its kind in Canada.”

In 2020, New York-based Apollo paid US$3-billion for a 49 per cent stake in the beer can manufacturing division of Budweiser parent Anheuser-Busch InBev SA/NV. In June, Apollo invested US$11-billion for a 49 per cent holding in Intel Corp.’s computer chip manufacturing operations. In a news release, Apollo and Intel described the deal as “a funding approach designed to create financial flexibility to accelerate the company’s strategy.”

This fall, Rogers offered Blackstone, Apollo and a number of other large asset managers an opportunity to invest in its backhaul business, which generates fees from carrying data. Along with Blackstone and Apollo, Toronto-based Brookfield Asset Management Ltd. BAM-T and New York-based KKR & Co. Inc. KKR-N made pitches, according to one of the sources.

Blackstone offered the best terms and is negotiating the final details of an agreement with Rogers. However, the sources said Apollo is still attempting to elbow aside its rival by sweetening its offer. Earlier this month, Rogers said it expects to close the backhaul sale by the end of the year. The transaction does not require regulatory approval, the sources said.

Brookfield declined to comment. Spokespeople for Apollo and KKR could not immediately be reached.

In a conference call earlier this month, Rogers chief financial officer Glenn Brandt said the outside investor would own a minority stake in a backhaul business with more than 40 per cent annual growth in data traffic. “We maintain control, we de-lever and the impact on our free cash flow and ability to continue to invest in our business carries on unrestricted by this transaction,” Mr. Brandt said.

Blackstone will initially earn roughly $400-million a year from its investment, with the payout rising over time as data traffic increases, analysts predicted. Paying down debt will save Rogers about $280-million in annual interest costs. In a report, analyst Maher Yaghi at Bank of Nova Scotia said: “The data stream involved is very predictable and its economics are highly valuable for private equity or pension funds looking for dependable steady revenue streams.”

Rogers plans to use the money raised from Blackstone’s investment to pay down debt after borrowing to buy Shaw Communications Inc. for $20-billion. The company also recently announced plans to acquire BCE Inc.’s stake in Maple Leaf Sports & Entertainment Inc. for $4.7-billion, without taking on new loans. Earlier this month, Rogers said selling the stake in its wireless infrastructure puts the company a year ahead of schedule on debt reduction targets.

Blackstone is one of the world’s largest asset managers, with more than US$1-trillion in client assets under management. The company has committed approximately US$53-billion to infrastructure, including an investment in U.S. telecom platform Hotwire Communications, which runs networks of fibre to homes.

Blackstone is a significant player in Canada, with approximately US$15-billion committed to real estate and private equity investments. Last year, Blackstone opened an office in Toronto as part of a strategy aimed at winning more Canadian institutional clients and increasing its holdings.

Rogers will continue to control its backhaul operations after Blackstone invests in the business. Mr. Brandt said the telecom company will have the right to buy the division back in the future, if it decides to do so. Brewer AB InBev negotiated the right to reacquire Apollo’s stake in its beer can maker, beginning on the fifth anniversary of the close of the transaction, for a predetermined price.

While Canadian telecom companies own infrastructure such as backhaul networks and cellphone towers, U.S., Asian and European phone companies have spent the past two decades selling stakes in their hardware to build their balance sheets.

Over the past five years, infrastructure divestments accounted for 38 per cent of the US$510-billion in deals done in the global telecom sector, according to a report released in August by Bain & Co. Phone companies pulled in US$112-billion by selling all or part of their cell towers, US$41-billion from divesting fibre-optic networks and US$27-billion from selling satellites.

With a report from James Bradshaw