Toronto sports empire sold to Rogers and BCE

Two of Canada's largest telecom and media companies will take control of the Toronto sports empire that owns the NHL's Maple Leafs in a C$1.32 billion ($1.30 billion) deal that brings more premium content to their competing sports channels.

Ontario Teachers' Pension Plan said on Friday it is selling its 79.5 stake in Maple Leaf Sports and Entertainment, which owns a prized collection of some of the most valuable sports assets in Canada's largest city.

Rogers Communications and BCE, parent of Bell Canada, will evenly divide a 75 percent stake, while Larry Tanenbaum and his firm Kilmer Sports Inc, which already own the remaining 20.5 percent, will raise their stake to 25 percent.

We believe it is strategically positive to control content-producing assets like MLSE, said Desjardins analyst Maher Yaghi in a note to clients, referring to Rogers and BCE. Splitting the cost between these two large enterprises is also positive, as it lowers the risk profile of the acquisition.

MLSE owns the National Hockey League's Toronto Maple Leafs, ranked by Forbes magazine as the most valuable NHL team at $521 million, more than double the average.

In a city where hockey is king, the team has a deep, loyal fan base that pays top dollar for sold-out home games. Their popularity endures even though the Leafs haven't won the Stanley Cup, the NHL's championship trophy, since 1967 or made a playoff appearance since 2003-04.

MLSE also boasts the National Basketball Association's Raptors, Major League Soccer's Toronto FC and the Air Canada Centre, the downtown arena in which the Leafs and Raptors play. It also has other sporting franchises, and related broadcasting assets and properties.

The deal brings Rogers, Canada's biggest wireless company and owner of the Toronto Blue Jays baseball club, more premium content to feature on its Sportsnet media stable. By the same token, BCE locks up more sports programming for its TSN channel.

The fear is always that the other guy buys it. In this case one negates the other, and neither has to pay as much, said Dvai Ghose, an analyst at Canaccord Genuity.

But the deal, which pegs MLSE's enterprise value at about C$2 billion, may not pay off over the long run, analysts said, pointing out it bucks a recent trend by media companies to exit investments in sports franchises.

In October, for example, the NBA approved Comcast's sale of the Philadelphia 76ers to private equity buyers.

We note that owning content has not historically resulted in synergies for telco providers, said Yaghi.

The Desjardins analyst said neither of the two partners would likely have exclusive rights to Leafs games. The Canadian Broadcasting Corp will probably acquire rights to broadcast some of the ice hockey games too.

DEAL STRUCTURE

Rogers is putting in C$533 million to acquire a 37.5 percent equity interest in MLSE, while Bell Canada is investing C$398 million to buy a 28 percent equity interest. Separately, BCE's pension plan will buy a 9.5 percent interest for C$135 million.

BCE has structured the deal that way because it also owns a stake in the NHL's Montréal Canadiens. Under league rules, it must keep its investment in the Leafs owner below a 30 percent threshold.

The consent of Tanenbaum, who had the right of first refusal on any offer, was pivotal. It was not immediately clear how much Tanenbaum is paying for the 4.5 percent he gets out the deal. He will remain chair of MLSE, as well as a governor of the NHL, the NBA and Major League Soccer.

The transactions are expected to close in mid-2012 following required regulatory and league approvals, all four parties said in separate statements. Canada's Competition Bureau confirmed that it would review the proposed MLSE deal.

Teachers, one of Canada's largest pension fund managers, first bought into the MLSE in 1994 in what at the time was considered a radical move. The fund, long-considered a trailblazer, manages about C$110 billion in assets and has one of the industry's highest rates of return.

In September, Teachers acquired TD Capital's minority stake in MLSE for an undisclosed amount, boosting its interest to nearly 80 percent. It said the move was aimed at improving its chances of selling the entire holding.

Shares of Rogers Communications were down 41 Canadian cents at to C$36.54 in afternoon trading on Friday, while BCE shares were up 2 Canadian cents to C$40.62.