The document presents a quantitative and qualitative analysis of Québecor Inc.'s repurchase of stock from the Caisse de dépôt et placement du Québec, focusing on financial and strategic implications, with a total of 30.5 million shares valued at $1.5 billion. It includes company profiles, industry analysis, valuation methods, and discusses the impacts of the deal on involved parties. The study concluded with an evaluation of whether fair value was achieved, based on national analysts' claims.

1.
A
QUANTITATIVE
AND
QUALITATIVE
ANALYSIS
OF
THE
REPURCHASE
OF
STOCK
BETWEEN
AND
ALEX
BOTTAUSCI
•
MARK
LEMOINE
•
YOUSEF
MADANI
JOHN
MOLSON
SCHOOL
OF
BUSINESS
CONCORDIA
UNIVERSITY
EMBA
681
CORPORATE
FINANCE
DR.
HARJEET
BHABRA
DECEMBER
1ST,
2012

2. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
2
TABLE
OF
CONTENTS
INTRODUCTION
3
COMPANY
PROFILES
3
Québecor
Inc.
Caisse
de
dépôt
et
de
placement
du
Québec
Quebecor
Media
Inc.
THE
CABLE,
TELECOMMUNICATIONS
&
MEDIA
INDUSTRIES
6
The
Cable
Industry
The
Telecommunications
Industry
The
Media
Industry
THE
COMPARABLE
COMPANIES
9
Bell
Canada
Enterprises
Inc.
Rogers
Communications
Inc.
Shaw
Communications
Inc.
Cogeco
Inc.
THE
TRANSACTION
11
2000
2012
VALUATION
OF
QMI’S
SHARES
13
Two
Valuation
Methods
Statements
and
Assumptions
VALUATION
1:
MARKET-­‐BASED
COMPARABLES
COMPANIES
APPROACH
15
Step
1:
Equity
Step
2:
Debt
Step
3:
The
Total
Value
of
the
Firm
VALUATION
2:
THE
DISCOUNTED
CASH
FLOW
APPROACH
17
SCENARIO
1
Step
1:
Free
Cash
Flow
to
the
Firm
(FCFF)
Step
2:
Cost
of
Capital
(KD)
Step
3:
Cost
of
Debt
(KE)
Step
4:
Weighted
Average
Cost
of
Capital
(WACC)
Step
5:
Discount
the
FCFFs
and
Terminal
Values
SCENARIO
2
THE
FINAL
ESTIMATED
PRESENT
VALUE
OF
QMI
SHARES
20
ANALYSIS
AND
DISCUSSION
20
The
Deal’s
Impact
of
QBR
and
QMI
The
Deal’s
Impact
on
CDP
CONCLUSION
23
APPENDIX
1
24
APPENDIX
2
25
APPENDIX
3
26
REFERENCES
27

3. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
3
INTRODUCTION
On
October
3rd
of
this
year,
Québecor
Inc.
and
the
Caisse
de
dépôt
et
placement
du
Québec
(CDP)
reached
an
agreement
on
the
partial
sale
of
the
CDP’s
interest
in
Quebecor
Media
Inc.
(QMI).
Québecor
will
purchase
a
total
of
30.5
million
shares
valued
at
$1.5
billion.
The
purpose
of
this
study
is
to
analyze
the
quantitative
and
qualitative
aspects
of
the
CDP’s
reduction
in
ownership
of
QMI,
including
the
motives
and
non-­‐financial
considerations
behind
the
deal.
In
addition,
this
paper
will
seek
to
determine
if
fair
value
was
realized
and
validate
or
disprove
the
National
Post’s
analysts’
claim
that
this
“pegs
the
Value
of
QMI
at
about
$6-­‐billion,
representing
a
20%
premium”.1
COMPANY
PROFILES
Québecor
Inc.
Québecor
Inc.
(TSX:
QBR)
was
founded
by
Pierre
Péladeau
in
1950,
in
Montréal,
Québec
with
a
small
neighbourhood
newspaper.
Mr.
Péladeau
went
on
to
build
a
vast
communications
empire
offering
cutting-­‐edge
technology
and
constantly
evolving
business
solutions.
Today,
Québecor
has
a
fast-­‐expanding
national
presence
but
remains
profoundly
attached
to
its
roots,
hence
one
of
the
main
motives
behind
the
initial
transaction.
A
new
generation
of
managers
is
drawing
on
the
company's
traditions
to
sustain
and
nourish
its
growth
into
the
future.
For
2011,
Québecor
reported
revenues
of
$4.3
Billions
and
a
net
income
of
$374
Millions.
Pierre
Karl
Péladeau
is
the
current
President
and
Chief
Executive
Officer
and
is
also
the
firm’s
majority
shareholder,
possessing
72.16%
interest
in
the
company
(Appendix
1).
2
The
Chief
Financial
Officer
(CFO)
is
Jean-­‐François
Pruneau.
The
current
members
of
the
board
of
directors
of
Québecor
Inc.
are;
• Françoise
Bertrand,
Chairwoman
of
the
BOD
• Rt.
Hon.
Brian
Mulroney
Vice-­‐Chairman
of
the
BOD
• Pierre
Karl
Péladeau
• Jean
La
Couture
• Sylvie
Lalande
• Pierre
Laurin
• Geneviève
Marcon
• Pierre
Parent

4. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
4
In
2000,
Québecor
Inc.
opened
a
new
chapter
in
its
development
with
the
acquisition
of
the
Groupe
Vidéotron
Ltée.,
the
largest
cable
operator
in
Québec.
Along
with
Vidéotron,
Québecor
picked
up
its
subsidiaries
Netgraphe,
an
important
Web
content
developer
and
operator
of
numerous
Web
properties,
and
TVA
Group,
owner
of
the
TVA
broadcasting
network
and
of
magazine
publisher
TVA
Publishing.
To
carry
out
this
major
acquisition,
Québecor
formed
a
partnership
with
a
major
financial
backer,
the
Caisse
de
dépôt
et
placement
du
Québec,
and
together
created
a
new
subsidiary,
Quebecor
Media
Inc.
Today,
the
bulk
of
Quebecor
Media’s
profit,
and
in
turn
Québecor’s
comes
from
Vidéotron.
Caisse
de
dépôt
et
de
placement
du
Québec
The
Caisse
de
dépôt
et
placement
du
Québec
(CDP)
was
founded
in
1965
by
an
act
of
the
National
Assembly
and
it
manages
institutional
funds,
primarily
from
public
and
private
pension
and
insurance
funds
in
Québec,
including
the
Régie
des
rentes
du
Québec
and
the
Commission
administrative
des
regimes
de
retraite
et
d’assurances,
amongst
dozen
others.
The
CDP
is
headquartered
in
Québec
City
but
has
its
major
business
office
in
Montréal.
The
CDP
has
traditionally
favoured
Québec
businesses.
The
CDP’s
mandate,
as
defined
by
legislation
passed
in
2003,
is
to
“achieve
an
optimal
return
on
the
deposits
of
its
clients,
or
depositors,
while
contributing
to
Québec's
economic
development”3.
This
concept
was
further
pressed
just
weeks
before
the
QBR
and
CDP
transaction.
After
winning
the
provincial
elections
in
early
September
2012,
new
Québec
Premier
Pauline
Marois,
who
fought
off
the
recent
U.S.
takeover
bid
for
Québécois
home-­‐improvement
chain
Rona
Inc.,
said
that
the
role
of
Quebec’s
pension
fund
should
be
strengthened
to
keep
corporate
headquarters
in
Québécois
hands.4
Nicolas
Marceau,
Québec’s
Finance
Minister,
also
proposed
additional
revisions
to
the
CDP’s
mandate
so
that
it
would
further
promote
economic
development
and
work
to
“keep
the
strategic
decision-­‐making
centers
here.”
The
CDP’S
large
holdings
make
it
a
formidable
player
in
investment
markets.
Today
it
is
the
leading
private
equity
investor
in
Canada
and
it
is
also
one
of
the
10
largest
real
estate
asset
managers
in
the
world.5
It
is
the
second
largest
pension
fund
in
Canada,
with
the

5. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
5
Canada
Pension
Plan
(CPP)
in
first
place.6
In
addition,
the
CDP’s
financial
soundness
has
earned
it
the
best
credit
ratings
issued
by
the
following
credit
rating
agencies:
Moody's
Investors
Service,
Standard
and
Poor's,
and
Dominion
Bond
Rating
Service.7
As
of
February
2012,
the
CDP’s
total
assets
under
management
amount
to
$159
billion.
The
CDP’s
President
and
CEO
is
Michael
Sabia,
the
Vice-­‐President
and
Chief
Risk
officer
is
Claude
Bergeron,
and
the
CFO
is
Maarika
Paul.
The
current
Board
of
Directors
of
the
CDP
are:
§ Robert
Tessier
Chair
of
the
board
§ Michael
Sabia
§ Elisabetta
Bigsby
§ Luise
Charette
§ Jocelyne
Dagenias
§ Michèle
Desjardins
§ Pierre
Fitzgibbon
§ Denys
Jean
§ A.
Michel
Lavigne
§ Jean
Pierre
Ouellet
§ Réal
Raymond
§ François
R.
Roy
§ Ouma
Sananikone
Quebecor
Media
Inc.
Quebecor
Media
Inc.,
a
fully
integrated
media
and
telecom
company,
was
founded
in
2000
and
is
headquartered
in
Montréal,
Québec.
It
is
a
subsidiary
of
Québecor
Inc.
and
it
operates
mostly
in
the
province
of
Québec
but
is
also
present
in
the
rest
of
country.
QMI
possesses
several
divisions
and
they
include;
Vidéotron,
a
cable,
VoIP,
and
internet
service
provider,
Sun
Media
and
Canoë,
the
largest
newspaper
publisher
in
Canada,
TVA,
the
largest
French
language
broadcaster
and
publisher
in
North
America,
and
Archambault,
a
music
and
book
retailer.
QMI’s
2009
revenues
totalled
$3.7
billion,
while
its
EBITDA
stood
at
$1.2
billion.
Pierre
Karl
Péladeau
is
the
President
and
CEO,
and
the
CFO
is
Jean-­‐François
Trudeau.
Current
members
of
the
board
of
directors
of
Québecor
Media
Inc.
are;
§ Serge
Gouin
Chairman
of
the
BOD
§ Pierre
Karl
Péladeau
§ André
Delisle
§ Jean
La
Couture
§ Rt.
Hon.
Brian
Mulroney,
§ Samuel
Minzberg
§ Normand
Provost

6. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
6
THE
CABLE,
TELECOMMUNICATIONS
&
MEDIA
INDUSTRIES
Canadian
cable,
telecommunications
and
media
businesses
operate
in
highly
competitive
industries
that
are
experiencing
relentless
rapid
technological
developments
and
in
turn
necessitate
large
capital
investments
by
the
firms.
The
following
provides
the
reader
some
insight
into
these
industries
that
are
very
much
linked
and
dependent
on
each
other.
The
Cable
Industry
Cable
television
has
been
available
in
Canada
for
more
than
50
years
and
it
is
a
well-­‐
developed
market.
As
2010,
there
were
approximately
8.3
million
cable
television
customers
in
Canada.
The
total
industry
revenue
for
2012
was
estimated
to
be
over
$10.1
billion.
These
revenues
are
expected
to
grow
based
on
the
fact
that
Canadian
cable
operators
have
aggressively
upgraded
their
networks
and
have
begun
launching
and
deploying
new
products
and
services,
such
as
cable
Internet
access,
digital
television
services
and
telephony
services.
The
following
table
summarizes
the
most
recent
available
industry
revenue
statistics
for
the
Canadian
and
American
cable
television
industries
and
the
Compounded
Annual
Growth
Rate.
CANADIAN
&
US
CABLE
INDUSTRIES
2010
2009
2008
2007
2006
CAGR
REVENUE
(BILLIONS)
$10.10
$9.20
$8.20
$7.10
$6.10
13.5%
The
Telecommunications
Industry
The
details
found
in
this
segment
description
have
been
largely
taken
from
Mergent’s
North
American
Telecommunications
Sectors
May
2012
industry
review.
The
Canadian
telecoms
industry
is
one
of
the
most
developed
mobile
markets
in
the
world,
with
Canadian
consumers
continuing
to
adopt
wireless
services
at
a
healthy
pace.
This
has
resulted
in
carriers
offering
coverage
to
more
than
99%
of
Canadians.
Overall,
the
wireless
communications
sector
plays
an
important
role
in
the
telecoms
industry,
generating
a
total
economic
value
of
about
$41
billion.
The
Canadian
Wireless
Telecommunications
Association
(CWTA)
estimates
wireless
phone
customers
in
Canada
numbered
25.1
million

7. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
7
at
the
end
of
June
2011,
or
about
75%
of
the
population,
with
wireless
service
providers
reporting
a
net
addition
of
314,456
new
subscribers.
The
majority
of
Canada’s
telecom
companies
recorded
increases
in
revenues
over
the
first
half
of
2012.
Mobile
advertising
revenues
are
growing
throughout
Canada,
with
mobile
search
advertising
generating
most
of
the
revenue.
The
Interactive
Advertising
Bureau
of
Canada
announced
in
the
spring
of
2012
that
mobile
advertising
revenue
jumped
from
C$22.8
million
in
2009
to
C$46.6
million
in
2010.
It
has
now
been
forecasted
that
revenues
will
rise
by
nearly
110%
in
2012,
climbing
to
an
estimated
C$98
million.
The
share
price
over
the
six
months
ended
April
2012,
overall
Canadian
telecom
share
prices
rose
by
an
average
6.48%,
up
from
the
April
to
October
2011
period,
when
share
prices
declined
by
6.59%.
The
outlook
for
the
telecommunications
sector
is
relatively
positive,
but
not
strong,
with
intense
competition
between
both
big
and
small
players
in
the
industry
reflected
in
price
growth
over
the
past
six
months.
Over
the
past
year,
there
were
constant
new
product
launches
including
new
smartphones
and
digital
TV
products,
resulting
in
the
higher
use
of
wireless
services.
As
the
rate
of
adoption
for
smartphones
and
tablets
continues
to
climb,
spending
on
wireless
data
is
expected
to
more
than
double
in
the
next
year.
The
Media
Industry
The
details
found
in
this
segment
description
have
largely
been
taken
from
Mergent’s
North
American
Media
Sectors
August
2012
industry
review.
Despite
being
dwarfed
by
the
American
media
industry,
the
Canadian
media
industry
is
large
by
international
standards.
It
plays
a
crucial
role
in
Canada’s
economy
and
in
public
communication,
covering
an
area
of
9,984,670
square
kilometers
with
a
population
of
34.3
million
divided
almost
equally
among
rural,
suburban
and
urban
areas.
Canadian
media
content
is
popular
globally
in
certain
markets,
although
not
on
the
same
scale
as
US
media
content.
Many
English
and
French-­‐speaking
countries
around
the
world
air
and
publish
Canadian
media
content
regularly.

8. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
8
Modern
Canadian
broadcasting
began
in
the
1930s
with
the
formation
of
the
Canadian
Broadcasting
Corporation/Radio-­‐Canada
(CBC),
which
runs
all
public
broadcasting.
Private
broadcasting
is
diverse
and
also
mature,
with
a
concentrated
market
mostly
shared
by
four
major
television
networks
—
CTV,
Global,
TVA
and
V.
The
CRTC
lists
slightly
fewer
than
commercial
2,000
radio
stations
across
Canada.
In
addition,
there
were
95
English
and
French
language
paid-­‐for
dailies
in
circulation
at
the
end
of
2011,
and
more
than
1,100
community
newspapers.
The
(CRTC)
reported
that
the
estimated
broadcasting
segment
revenues
totalled
C$15.713
billion
and
were
up
8.94%
in
2010,
reflecting
revenue
improvement
in
all
of
the
broadcasting
segments.
While
cable
and
direct-­‐to-­‐home/multipoint
distribution
service
plus
IPTV
revenue
rose
by
8.94%,
television
revenue
grew
by
10.59%
and
radio
by
2.92%.
Television
advertising
spending
is
forecast
to
grow
by
6.75%
in
2012,
while
radio
advertising
spending
is
forecast
to
pick
up
by
3.73%.
Online
advertising
spending
is
likely
to
rise
by
23.32%
in
2012,
more
than
total
advertising
spending
on
print
newspapers
and
magazines,
due
to
total
US
print
advertising
spending
would
drop
by
6.11%.
Canadian
television
broadcasters’
2011
advertising
revenues
were
up
4.74%,
representing
47.92%
of
the
industry’s
total
operating
revenues.
The
shares
of
leading
Canadian
companies
performed
well
over
first
half
of
2012.
The
following
table
identifies
the
leading
Canadian
media
companies
share
price
movements
in
the
six
months
from
December
2011,
to
May
2012.
COMPANY
TICKER
STOCK
EX.
PRICE
01/12/11
PRICE
31/05/12
DIFFERENCE
%
RISE/FALL
THOMSON
REUTERS
TRI
NYSE
US$26.88
US$27.47
US$0.59
2.19
ROGERS
RCI
TSX
C$37.81
C$35.32
(C$2.49)
-­‐6.59
SJR
SJR
NYSE
US$20.61
US$19.08
(US$1.53)
-­‐7.42
QUÉBECOR
QBR
TSX
C$32.55
C$37.75
C$5.20
15.98
TORSTAR
TS.B
TSX
C$8.51
C$9.57
C$1.06
12.46
Avg.
Rise/Fall
%
3.32

9. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
9
This
upbeat
outlook
for
the
media
industry
stands
in
contrast
to
Mr.
Péladeau’s
recent
comments
in
front
of
the
CRTC,
when
he
warned
that
the
cable
business
was
under
threat
as
he
tried
to
convince
the
Canadian
Radio-­‐television
and
Telecommunications
Commission
to
reject
a
merger
between
BCE
Inc.
and
Astral
Media.
Québecor’s
CEO’s
motive
must
be
taken
with
a
grain
of
salt,
considering
that
the
deal
would
have
made
one
its
main
rival
much
stronger
in
the
Québec
market.
THE
COMPARABLE
COMPANIES
The
following
four
companies,
BCE,
Rogers,
Shaw
and
Cogeco,
compete
with
Québecor
and
Quebecor
Media
in
the
cable,
telecommunications
and
media
industries
and
share
many
characteristics,
including
business
models,
with
Québecor
and
QMI,
and
in
turn
provide
the
most
accurate
comparable
companies
for
the
financial
valuation
process
conducted
in
this
study.
Brief
summaries
of
selected
financial
data
are
found
in
Appendix
3.
Bell
Canada
Enterprises
Inc.
Bell
Canada
Enterprises
Inc.
(TSX:
BCE)
is
headquartered
in
Montréal,
Québec
and
operates
predominantly
in
Canada,
providing
services
to
over
20,000,000
residential,
business
and
wholesale
customers.
The
company
was
originally
founded
in
1880
but
was
incorporated
under
federal
charter
in
1970
as
Tele-­‐Direct
Ltd.,
and
continued
to
operate
under
the
Canada
Business
Corporations
Act
of
1979.
The
company
was
renamed
Bell
Canada
Enterprises
Inc.
in
1983
and
shortened
it
to
BCE
Inc.
in
1998.
BCE
is
a
communications
company
engaged
in
providing
wireline
voice
and
wireless
communications
services,
internet
access,
data
services
and
video
services
to
residential,
business
and
wholesale
customers.
The
firm
operates
three
divisions:
1)
Bell
Wireline,
which
provides
local
telephone,
long
distance,
Internet,
data,
video
and
other
services
and
products;
2)
Bell
Wireless,
which
provides
wireless
voice
and
data
communication
products
and
services;
and
3)
Bell
Aliant,
which
provides
local
telephone,
long
distance,
Internet,
data,
video,
wireless
and
other
information
and
communications
technology
services.
For
2011,
BCE
reported
revenues
of
$19.49
billion
and
a
net
income
of
$2.34
billion.8

10. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
10
Rogers
Communications
Inc.
Rogers
Communications
Inc.
(TSX:
RCI)
was
originally
incorporated
in
1925,
in
Toronto,
under
the
name
of
Rogers
Vacuum
Tube
Company.
Although
the
head
offices
have
always
been
based
in
Toronto,
the
company
went
through
various
name
changes
until
1986
when
it
was
finally
changed
to
Rogers
Communications
Inc.
Rogers
provides
wireless
voice
and
data
communication
services,
and
like
BCE,
it
also
has
three
divisions;
1)
Rogers
Wireless;
cable
television
services,
high-­‐speed
internet
access,
and
telephony
services,
2)
Rogers
Cable;
retailing
of
communications
and
home
entertainment
products
and
services,
and
3)
Rogers
Media;
radio
and
television
broadcasting,
televised
shopping,
magazines
and
trade
publications,
and
sports
entertainment.
Rogers
recorded
revenues
of
$12.42
billion
and
a
net
income
of
$1.56
billion
in
2011.
9
Shaw
Communications
Inc.
Shaw
Communications
Inc.
(TSX:
SIR)
was
incorporated
in
1966
as
Capital
Cable
TV
Ltd.
and
became
Shaw
in
1993.
Shaw
is
headquartered
in
Calgary,
Alberta
and
it
provides
services
for
mostly
British
Columbia,
Alberta,
with
smaller
systems
in
Saskatchewan,
Manitoba
and
Northwestern
Ontario.
The
company
offers
broadband
cable
television,
high-­‐
speed
Internet,
digital
phone,
telecommunications
services,
satellite
direct-­‐to-­‐home
and
distribution
services
and
television
broadcasting.
The
firm
is
thus
divided
into
three
businesses;
Shaw
Business,
Shaw
Direct
and
Shaw
Media,
that
serve
four
main
business
segments:
1)
the
Cable
segment,
which
is
comprised
of
cable
television,
internet,
digital
phone
and
internet
infrastructure
service
businesses;
2)
the
Satellite
segment,
which
comprised
of
direct-­‐to-­‐home
and
satellite
services;
3)
the
Wireless
Segment,
which
is
in
the
development
and
construction
stage;
and
4)
the
Media
segment,
which
includes
television
broadcasting.
In
2012,
Shaw
reported
revenues
of
$4.99
billion
and
a
net
income
of
$728
million.10
Cogeco
Inc.
The
Compagnie
Général
de
Communication,
otherwise
known
as
Cogeco
Inc.
(TSX:
CGO),
was
founded
in
Trois-­‐Rivières
in
1957,
and
today
it
is
based
in
Montréal,
Québec.
It
provides
cable
television,
high-­‐speed
internet,
telephony,
managed
information
technology

11. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
11
and
infrastructure,
and
other
telecommunications
services
to
residential
and
commercial
customers
in
the
provinces
of
Québec
and
Ontario,
and
it
conducts
international
operations
in
Portugal.
Through
its
affiliate
Cogeco
Cable
Inc.,
the
company
provides
audio,
analogue
and
digital
television,
high-­‐speed
Internet
(HSI)
and
telephony
services
to
residential
customers
in
Ontario
and
Quebec.
Cogeco
Cable
also
provides
its
business
customers
with
data
networking,
e-­‐business
applications,
video
conferencing,
hosting
services,
Ethernet,
private
line,
Voice
over
Internet
Protocol
(VoIP),
HSI
access,
data
storage,
data
security,
co-­‐
location
services,
managed
IT
services,
cloud
services
and
other
advanced
communications
services.
Furthermore,
Cogeco
runs
thirteen
French-­‐language
radio
stations
throughout
Québec,
Cogeco
News,
a
news
agency
feeding
close
to
24
affiliate
and
community
radio
stations
across
the
province,
and
it
also
operates
Métromedia
CMR
Plus
Inc.,
an
advertising
representation
agency
specializing
in
the
public
transport
sector.
Just
this
year
Cogeco
made
a
$1.3-­‐billion
purchase
of
U.S.-­‐based
Atlantic
Broadband,
the
fifteenth
largest
cable
provider
in
the
U.S.A.,
and
it
has
been
criticized
because
analysts
believe
it
paid
too
high
a
price
on
assets
they
feel
is
in
decline.
Cogeco
shares
fell
sharply
when
the
deal
was
announced.11
2012
revenues
stood
at
$1.41
billion
but
it
terms
of
net
income
the
company
registered
a
$77
million
gain.
THE
TRANSACTION
2000
Before
outlining
the
transaction’s
motives
and
details,
it’s
important
to
understand
why
the
two
firms
entered
a
partnership
in
the
first
place.
As
mentioned
earlier,
the
CDP’s
traditional
role
has
been
to
favour
and
invest
into
Québec
businesses.
Québecor
is
a
profit-­‐
seeking
firm
where
financial
growth
is
always
one
of
the
primary
objectives.
With
this
in
mind,
in
the
year
2000,
the
Toronto
based
Rogers
Communications
Inc.,
one
Canada’s
largest
communications
companies,
began
a
friendly
takeover
process
with
Le
Groupe
Vidéotron
Ltée.,
an
important
Québécois
cable
and
media
company.
In
reaction,
the
Québecor
and
the
Caisse
de
dépôt
et
placement
du
Québec
formed
a
partnership
and
launched
a
hostile
takeover
bid
and
bought
out
the
provincial
cable
provider
and
preserved
an
important
‘national’
media
outlet
in
Québécois
hands.
On
Oct.
23,
2000,
the
company

12. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
12
and
the
CDP,
jointly
acquired
Vidéotron
for
$45
per
share,
in
a
deal
valued
at
$5.4
billion.
The
transaction
followed
a
decision
by
Rogers
to
terminate
its
merger
agreement
with
Vidéotron.
When
the
dust
settled
Québecor
had
54.7%
and
the
CDP
had
45.3%
of
Vidéotron.
2012
Today,
Mr.
Péladeau
explains
the
latest
deal
as
the
following;
“The
time
frame
of
the
holding
of
the
Caisse
(CDP)
was
longer
than
usual
…
(and)
we
saw
there
were
some
opportunities
in
the
debt
markets.”12
He
further
added;
“the
transaction
won’t
impair
the
financial
flexibility
Québecor
needs
to
grow
the
capital
the
capital
intensive
telecom
business.”
He
added
that
other
objectives
of
this
transaction
are
to
include
the
preservation
of
operational
and
financial
flexibility
and
to
achieve
an
optimal
capital
structure
and
maturity
profile
at
QMI.
It
was
announced
on
October
3rd,
2012
that
Québecor,
Quebecor
Media
and
the
Caisse
de
dépôt
et
placement
du
Québec
entered
an
agreement
providing
the
reduction
of
CDP’s
interest
in
QMI
from
45.28%
to
24.64%13.
Québecor
purchased
20,351,307
shares
from
the
CDP
for
$1
billion
in
cash,
and
will
immediately
cancel
them.
In
addition,
Québecor
also
purchased
an
additional
10,175,653
shares
for
$500
million
in
consideration
that
the
CDP
will
receive
in
return
unsecured
debentures
convertible,
bearing
an
interest
if
4.125%
and
maturing
around
October
11,
2018,
into
Québecor
Class
B
Subordinate
shares14
(Appendix
2).
This
could
allow
the
CDP
to
either
force
QMI
to
become
a
public
company
by
2019,
or
sell
the
remaining
stake
to
a
third-­‐party.
Québecor
says
it
intends
to
take
advantage
of
the
low
interest
rates
to
access
financial
markets
to
pay
for
the
shares.15
In
the
end,
the
deal
was
closed
on
October
2012
and
Québecor’s
control
in
QMI
increased
to
75.36%.
The
agreement
also
allows
the
CDP
to
exit
rights
in
2019,
through
either
an
IPO
or
sale
to
a
financial
third
party,
and
Québecor
and
QMI
are
under
no
obligation
to
purchase
the
CDP’s
remaining
interest.
According
to
the
National
Post,
this
deal
pegs
the
value
of
Quebecor
Media
at
$6
billion,
which
would
suggest
a
20%
premium.16
The
Market
Value
transaction
that
took
place
between
Québecor
and
the
CDP
is
valued
at
$
7.246
billion.
This
is
based
on
$1.5
billion

13. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
13
paid
for
20.70%
shares
at
$49.14
per
share.
The
following
table
clarifies
the
transaction’s
details:
AMOUNT
PAID
TYPE
#
OF
SHARES
SHARE
PRICE
TOTAL
VALUE
OF
SHARES
$
1,000,000,000
Cash
20,351,307
16.5750%
$
500,000,000
Debt
10,175,653
4.1250%
$
1,500,000,000
30,526,960
20.70%
$49.14
$
7,246,377,048.97
VALUATION
OF
QMI’S
SHARES
Two
Valuations
Methods
The
objectives
of
this
paper
is
to
valuate
the
shares
of
QMI
and
determine
if
the
transaction
was
of
fair
value
and
validate
or
disprove
National
Post’s
analysts
claim.
Two
valuation
approaches,
methods
used
to
estimate
the
attractiveness
of
an
investment
opportunity,
will
be
applied:
the
Market-­‐Based/Comparables
Companies
Approach
and
the
Discounted
Cash
Flow
Approach.
Valuation
1
-­‐
Market-­‐Based
Comparable
Company
Approach:
To
use
the
Market-­‐
Based/Comparable
Company
Approach
one
must
first
look
to
the
public
markets
for
firms
which
most
closely
resemble
the
target
firm
and
then
use
indicators
of
financial
position
such
as
EBITDA,
Revenue
or
Net
Income
to
make
comparisons.
By
consolidating
the
data
it
is
possible
to
make
an
educated
estimate
of
the
value
of
an
equity
position
in
the
private
firm,
and
by
adding
the
firm’s
debt
value,
if
any,
it
is
then
possible
to
estimate
the
firm’s
total
value.17
The
comparable
companies
described
above,
BCE,
Rogers,
Shaw,
and
Cogeco
and
their
financial
data,
are
for
the
valuation
process
of
this
study.
These
companies
share
many
characteristics
with
Québecor
and
QMI,
and
in
turn
it
is
believed
that
they
offer
the
most
accurate
comparables
for
the
valuation
process.
Valuation
2
-­‐
Discounted
Cash
Flows
approach:
A
Discounted
Cash
Flow
(DCF)
analysis
uses
future
free
cash
flow
projections
and
discounts
them
(most
often
using
the
Weighted
Average
Cost
of
Capital)
to
arrive
at
a
present
value,
which
is
used
to
evaluate
the
potential
for
investment.
The
premise
of
the
discounted
cash
flow
method
is
that
the

14. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
14
current
value
of
a
company
is
simply
the
present
value
of
its
future
cash
flows
that
are
attributable
to
shareholders.18
Statements
and
Assumptions
• All
QMI
financial
figures
are
based
on
QMI’s
2011
Official
Financial
Statements
and
are
in
millions
of
dollars.
In
addition,
all
financial
values
are
in
Canadian
(CAD)
dollars,
unless
otherwise
noted.
• The
Corporate
Tax
Rate
(TC
)
used
is
28.4%.
This
figure
was
taken
from
QMI’s
2011
financial
statements19.
• Growth
Rate
(g):
The
Growth
Rate
that
was
considered
in
the
valuation
of
the
QMI
was
based
on
the
analyst
prospects
for
long
term
and
future
growth
in
the
industry
for
parent
company.
An
industry
analysis
was
conducted
and
the
Free
Cash
Flow
to
the
Firm
(FCFF)
is
expected
grow
over
the
next
five
years
by
9.47%20.
Afterward
it
is
expected
and
assumed
to
grow
on
stable
rate
of
5%.
• Return
on
Market
Portfolio
(Rm):
11.10%
is
the
historical
annual
average
return
(1957
to
2006)
on
Canadian
common
stocks.21
• The
Risk-­‐Free
Rate
(Rf):
The
Risk-­‐Free
Rate
of
3.70%
used
in
this
valuation
is
based
on
the
Government
of
Canada’s
Marketable
Bonds
10
year
historical
average.22
Date
Rf
Low
2012-­‐07-­‐23
1.58
Average
2002-­‐11-­‐29
—
2012-­‐11-­‐28
3.70
High
2003-­‐03-­‐21
5.22
• Beta
(β):
Since
QMI
is
a
private
company
there
is
little
public
information
available,
including
its
Beta.
To
overcome
this
obstacle,
two
alternatives
were
determined
suitable:

15. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
15
1)
Use
the
Québecor’s,
the
parents
company’s,
Beta
2)
Use
the
average
Beta
of
the
four
comparable
companies.
Considering
that
QMI
is
Québecor’s
main
operation,
and
that
86%
of
the
parent
company’s
revenues
originate
from
it’s
subsidiary,
using
QBR’s
Beta
at
0.8423
was
selected
as
the
best
number
to
use.
• Preferred
shares
will
be
ignore
in
the
calculation
for
WACC
considering
QMI
doesn’t
have
any
preferred
shares
outstanding.
• Net
Capital
Expenditure:
The
values
for
2010
and
2011
are
$689M
and
$780.7M,
respectively.24
Considering
that,
in
order
to
stay
competitive,
QMI
must
continue
to
make
capital
expenditures,
a
conservative
increase
is
anticipated.
A
value
of
$800M
will
be
used
in
this
study.
VALUATION
1
–
THE
MARKET-­‐BASED
COMPARABLES
COMPANIES
APPROACH
The
Total
Value
of
the
Firm
(Vf)
is
the
sum
of
firm’s
Debt
(D)
and
Equity
(E)
and
can
be
calculated
using
the
Market-­‐Based
Method
Comparables
Companies
approach.
Step
1:
Equity
The
following
four
indicators
of
financial
position
for
our
comparable
companies
were
selected:
Revenue,
Net
Income,
EBITDA
and
Total
Assets.
The
following
table
illustrates
the
market
data
for
the
four
comparable
companies:
Comparable
Companies
Beta
(β)
QBR
BCE
RCI
SIR
CGO
0.84
0.35
0.48
0.29
0.72

16. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
16
INDICATOR
VARIABLE
BCE
RCI
SIR
CGO
#
SHARES
OUTSTANDING
774,557,247
402,785,156
421,715,646
14,989,338
SHARE
PRICES
$41.99
$42.57
$21.38
$33.50
MARKET
VALUE
OF
COMPARABLES
(MVC)
$32,523,658,802
$17,146,564,091
$9,016,280,512
$502,142,823
1-­‐
REVENUE
(IC)
$19,497,000,000
$12,428,000,000
$4,998,000,000
$1,406,000,000
2-­‐
NET
INCOME
(IC)
$2,340,000,000
$
1,563,000,000
$728,000,000
$77,000,000
3-­‐
EBITDA
(IC)
$7,220,000,000
$
9,269,000,000
$1,204,000,000
$607,000,000
4-­‐
TOTAL
ASSETS
(IC)
$39,426,000,000
$18,362,000,000
$12,722,000,000
$3,104,000,000
The
next
table
estimates
QMI’s
Market
Value
of
Equity.
Listed
are
the
calculated
Market
Value
Multiples
for
the
comparable
companies
and
their
average
ratios.
These
ratios
are
multiplied
by
QMI’s
projections
to
calculate
the
equity.
QMI’s
Market
Value
of
Equity
is
$5.10
billion.
INDICATOR
(MVC/IC)
BCE
RCI
SIR
CGO
RATIO
AVG.
QMI
VALUE
(IC)
QMI
MARKET
VALUE
(MVt)
1-­‐
MVC/Rev
1.67
1.38
1.80
0.36
1.30
$4,207,000,000
$
5,478,491,222.35
2-­‐
MVC/NI
13.90
10.97
12.39
6.52
10.94
$374,000,000
$4,093,021,038.41
3-­‐
MVc/EBITDA
4.50
1.85
7.49
0.83
3.67
$1,341,200,000
$4,918,986,199.69
4-­‐
MVc/TA
0.82
0.93
0.71
0.16
0.66
$8,998,700,000
$5,914,901,008.17
Avg.
Est.
Value:
$5,101,349,867.15
Step
2:
Debt
The
value
of
the
Long-­‐Term
Debt
reported
in
QMI’s
financial
statement
was
is
valued
at
$3,617,600,000
or
$3.62B25.
Step
3:
The
Total
Value
of
the
Firm
Total
Value
of
the
Firm
(Vf)
=
Debt
(D)
+
Equity
(E)
=
$5.1B
+
$3.62B
=
$8,718,949,867
Total
Value
of
the
Firm
(Vf)
Market-­‐Based
Comparables
Companies
Approach
=
$8.72B

17. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
17
Having
computed
Equity,
and
the
Total
Value
of
the
Firm,
it
is
now
possible
to
calculate
the
Debt
Ratio
(D/V)
and
Equity
Ratio
(E/V)
as
well
as
the
Weighted
Average
Cost
of
Capital
(WACC)
for
QMI.
These
computations
will
be
performed
in
the
following
section.
VALUATION
2
–
THE
DISCOUNTED
CASH
FLOW
METHOD
Using
the
discounted
Free
Cash
Flow
to
the
Firm
(FCFF),
the
Growth
Rate
(g),
Corporate
Tax
Rate
(TC),
WACC,
the
value
of
QMI
can
be
found
using
the
Discounted
Cash
Flow
Approach
(DCF).
Two
scenarios,
Scenario
1
and
Scenario
2,
each
using
two
different
short-­‐term
and
perpetual
growth
rates
(g),
are
calculated
in
this
section.
SCENARIO
1:
The
following
is
a
step-­‐by-­‐step
calculation
of
QMI’s
value
using
the
DCF
approach:
Step
1:
Free
Cash
Flow
to
the
Firm
(FCFF)
FCFF
=
EBIT
(1
–
TC)
+
Depreciation
–
Δ
Net
Working
Capital
–
Net
Capital
Expenditures
i)
EBIT(1
–
TC)
+
Depreciation:
EBIT
=
($533.2+$311.5)
=
$
844.7M
(1-­‐TC)
=
71.60%
EBIT(1
–
TC)
+
Dep.
=
604.8052
+
509.3
=
$1,114.11M
ii)
Δ
Net
Working
Capital
(2011
–
2010):
A/R
=
602.6
-­‐
587.3
=
15.3
INVENTORY
=
283.6
-­‐
245.2
=
38.4
A/P
=
764.9
-­‐
723.9
=
41
Δ
Net
Working
Capital
=
$12.7M
iii)
Net
Capital
Expenditure:
Net
Capital
Expenditure
=
$800
M
FCFF0
=
$301.41M

18. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
18
Step
2:
Cost
of
Capital
(KE):
KE
=
Rf
+
β
*
(Rm-­‐
Rf):
Beta
(β)
=
0.84
Rf
=
3.70%
Rm
=
11.10%
(Rm-­‐Rf)
=
7.40%
KE
=
9.92%
Step
3:
Cost
of
Debt
(KD):
Cost
of
Debt
(Kd)
=
Long
term
Interest/Long
term
Debt
(KD)
=
$303.2M/$3617.6M
(KD)
=
8.38%
Step
4:
Weighted
Average
Cost
of
Capital
(WACC):
WACC
=
(E/V)KE
+
(D/V))KD(1-­‐TC
)
Total
Long
Term
Debt
(D)
=
$3,617,600,000
Market
Value
for
Equity
(E)
=
$5,101,349,867.15
Total
Firm
Value
(V)
=
$8,718,949,867.15
D/V
=
41.49%
E/V
=
58.51%
D/E
=
70.91%
Tax
rate
(Tc)
=
28.40%
WACC
=
8.29%

19. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
19
Step
5:
Discount
the
FCFFs
and
Terminal
Values:
PV
QMI
=
I. PV1-­‐5
=
$329.95
+
$361.20
+
$395.41
+
$
432.85
+
$473.84
=
$1,556,967,296.40
II. PV
of
TV
=
$10,149,405,047.60
Value
of
Firm
QMI
(PV0)
=$
1,556,967,296.40
+
$10,149,405,047.60=
$11,706,372,343.99
2011
2012
2013
2014
2015
2016
2017
M$
millions
FCF0
FCF1
FCF2
FCF3
FCF4
FCF5
FCFTV
FCFt(1+g)t
301.41
329.95
361.20
395.41
432.85
473.84
497.53
Discounted
CF
304.69
308.01
311.36
314.75
318.17
10,149,405,048
PV
QMI
=
$11,706,372,344
Scenario
1
PV
QMI
=
$
11.706
Billion
SCENARIO
2:
Scenario
2
uses
the
same
calculation
process
that
is
utilized
in
the
first,
but
this
time
a
different
growth
rate
is
used.
Rather
than
use
a
growth
rate
specific
to
the
Québecor
family,
an
industry
average
growth
rate
of
7.5%
for
the
first
5
years
is
used
and
then
an
arbitrary
3%
in
perpetuity.
To
arrive
at
the
industry
average
growth
rate,
the
growth
rate
for
the
comparable
companies
were
used:
COMPANY
EXPECTED
GROWTH
RATE
(g)
BCE
2.2
RCI
7.94
SJR
5.1
CGO
15
AVERAGE
OF
THE
4
7.5

20. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
20
Scenario
2
PV
Value
of
QMI
=
$7.13
Billion
THE
FINAL
ESTIMATED
PRESENT
VALUE
OF
QMI
SHARES
Three
different
firm
values
for
QMI,
based
on
different
approaches
and
two
scenarios,
were
calculated.
Due
to
the
uncertainty
in
the
future
growth
of
the
company
and
based
on
the
assumptions,
Scenario
1
seems
to
be
very
optimistic
and
will
give
us
the
higher
range
of
the
price;
Scenario
2
will
give
the
lower
range
of
the
price.
The
comparable
approach
is
falling
between
these
two
ranges.
With
this
in
mind,
some
averages
were
calculated
to
get
to
the
final
valuation
figure.
The
average
of
the
three
figures
is
the
Final
Estimated
Present
Value
of
Quebecor
Media
Inc.
I. Market-­‐Based/Comparables
Companies
Value
of
QMI
=
$8.719B
II. Scenario
1
DCF
Approach
Value
of
QMI
=
$11.706B
III. Scenario
2
DCF
Approach
Value
of
QMI
=
$7.130B
The
average
of
I
&
III
=
$7.925B
The
average
of
I,
II
&
III
=
$9.185B
The
Final
Estimated
Present
Value
of
Quebecor
Media
Inc.
=
$9.185
Billion
2
2011
2012
2013
2014
2015
2016
2017
M$
millions
FCF0
FCF1
FCF2
FCF3
FCF4
FCF5
FCFTV
FCFt(1+g)t
301.41
324.02
348.32
374.44
402.52
432.71
445.69
Discounted
CF
299.21
297.02
294.85
292.69
290.55
5,655,560,253
PV
QMI
=
$7,129,881,201

21. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
21
ANALYSIS
AND
DISCUSSION
Now
that
The
Final
Estimated
Present
Value
of
Quebecor
Media
Inc.
has
been
established,
the
paper
will
look
at
the
significance
of
the
deal,
the
valuation
difference,
and
the
impact
it
will
have
for
the
two
companies
involved.
The
Deal’s
Impact
on
QBR
and
QMI
Industry
analysts
are
uneasy
about
Quebecor’s
move.
Competition
for
cable
subscribers
has
intensified
sharply
as
BCE’s
Bell
Media
rolls
out
new
services
in
Québec
and
alternative
services
such
as
Netflix
make
it
easier
than
ever
for
consumers
to
cut
their
cable.26
In
addition,
the
transaction
comes
in
the
wake
of
other
cable
deals,
such
as
Cogeco’s,
that
have
been
criticized
for
placing
too
high
a
price
on
assets
many
feel
is
in
decline,
and
in
response
Cogeco’s
shares
fell
sharply
when
the
deal
was
announced.
As
well,
Maher
Yaghi,
an
analyst
at
Desjardins
Securities
stated;
“Historically
the
market
hasn’t
been
willing
to
pay
a
premium
to
Quebecor
for
its
stake
in
Quebecor
Media,
but
this
is
making
a
bet
that
the
market
is
going
to
someday
appreciate
and
be
ready
to
pay
for
its
value.”27
With
this
deal,
Quebecor
now
finds
itself
in
a
position
to
amass
a
greater
share
of
any
profits
generated.
For
Québecor
CEO
P.
K.
Péladeau,
this
amounts
to
a
gamble
that
there
is
room
to
increase
profits
at
the
company’s
cable
and
mobile
phone
operations
amid
uncertain
prospects
for
its
newspaper
and
television
assets.
Essentially
the
firm
doubled-­‐
down
on
its
cable
and
media
business,
and
made
a
$1.5-­‐billion
bet
that
Quebecor
Media
is
undervalued
and
can
generate
out
higher
profits
in
coming
years
despite
growing
competitive
pressure.
At
the
transaction’s
press
conference,
the
CEO
explained
that
he
wanted
to
take
advantage
of
favourable
debt
markets
and
increase
his
stake
in
Quebecor
Media
rather
than
allow
the
Caisse
stake
to
be
sold
to
someone
else.
“We
have
a
partner
here,”
he
said.
“Based
upon
our
long-­‐term
plan,
we
think
the
best
way
to
approach
higher
returns
for
our
shareholders
long
term
is
to
go
the
way
we
just
selected.
Sure,
there
would
have
been
another
opportunity
and
an
alternative
to
buy
our
own
stock,
but
we
don’t
think
that
would
have
been
the
best

22. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
22
result.”28
In
addition,
the
company’s
CFO,
Jean-­‐François
Pruneau,
said
that
QBR
is
paying
a
good
price
for
solid
assets.
“Considering
the
expected
financial
performance
of
Québecor
we
believe
that
the
price
paid
is
fair.”
The
deal
is
more
than
fair
for
Québecor
and
as
it
can
be
considered
a
bargain.
Yes,
there
is
some
risk,
but
it’s
a
good
one.
First
off,
as
discussed
earlier,
the
transaction
was
undervalued.
The
following
table
shows
that
when
one
compares
our
valuation
of
the
deal
to
the
actual
transaction,
Québecor
made
a
$401
million
gain:
While
the
analyst’s
outlook
of
the
deal
may
not
be
favourable,
the
3
industries
the
QMI
competes
in
will
continue
to
grow,
and
the
firm
will
certainly
follow
and
take
advantage
of
this.
As
well,
the
increase
controlling
will
allow
Québecor
and
Québecor
Media
to
have
more
decisional
power
in
its
day-­‐to-­‐day
operations
and
will
give
it
more
flexibility
in
its
ability
to
manipulated
its
capital
structure,
and
in
turn
be
more
competitive.
The
Deal’s
Impact
on
the
CDP
Quebec’s
big
pension
plan
manager
is
bailing
on
a
chunk
of
one
of
its
most
contentious
and
politically
driven
deals
of
the
past
few
decades,
which
is
a
reminder
that
it
puts
provincial
social
and
economic
development
before
profits.
The
transaction
will
see
the
CDP
sharply
reduce
its
stake
after
more
than
a
decade
of
weak
returns.
“The
total
value
is
$1.5-­‐billion,
and
for
the
Caisse,
the
return
is
unimpressive”
said
one
analyst.29
So
far
the
partnership
has
given
the
CDP
an
annual
return
of
0.74%.
This
ROI
cannot
be
considered
satisfactory.
The
CDP
could
have
invested
in
low
or
risk-­‐free
investments
and
that
would
have
made
for
a
better
investment.
At
this
time,
the
convertible
debentures
VALUE
OF
THE
FIRM
VALUE
OF
QMI
DEAL
VALUATION
FIGURE
$9,185,067,804
$1,901,295,000
ACTUAL
DEAL
$7,246,
376,811
$1,500,000,000
DIFFERENCE
+/-­‐
:
+$401,309,035

23. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
23
received
in
the
current
deal,
with
a
4.125%
return
rate,
is
a
better
investment
option
for
the
CDP.
Moreover,
the
unsecured
convertible
debentures
it
received
that
will
mature
in
2018
into
Québecor
Class
B
Subordinate
shares
and
will
make
for
an
interesting
future.
Six
years
from
now
the
company
will
come
at
a
crossroad
may
force
QMI
go
public.
Only
time,
and
its
return
on
investment,
will
tell
if
the
CDP
will
want
to
fully
detach
itself
from
this
partnership.
In
the
end,
while
the
deal
may
not
have
been
a
huge
financial
success,
it
can
be
said
that
the
CDP
fulfilled
its
main
as
it
helped
keep
a
large
and
influential
Québécois
company
in
Québec
and
in
Québécois
hands.
CONCLUSION
At
this
point,
it
is
cleat
that
the
transaction
is
fair
for
both
parties,
but
from
our
valuation
it
was
undervalued.
Québecor
got
a
‘deal’
and
will
allow
it
to
be
more
autonomous
regarding
business
strategies,
investments,
and
capital
structure.
The
competition
may
be
tightening
up
within
Québecor
Media’s
three
industries
may,
but
they
and
their
revenues
are
still
growing
and
will
certainly
continue
to
rise.
In
other
words,
this
is
a
great
deal
for
the
long-­‐
term
growth.
In
addition,
Pierre
Karl
Péladeau,
the
majority
owner
and
CEO,
has
the
opportunity
make
significant
gains
in
the
future.
On
the
other
hand,
the
CDP
CDP
has
successfully
fulfilled
its
political
and
social
mandate
and
has
reduced
it
stake
in
am
investment
that
that
was
not
producing
a
suitable
enough
ROI,
and
now
has
a
better
investment
with
the
unsecured
convertible
debentures.

24. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
24
APPENDIX
1
Québecor
Inc.
&
Quebecor
Media
Inc.
CEO,
President
and
Majority
Shareholder
Pierre
Karl
Péladeau

25. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
25
APPENDIX
2

26. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
26
APPENDIX
3
Comparable
Companies’
Selected
Financial
Data
Balance
Sheet
Total
Assets 39,426,000,000.00
18,362,000,000.00
12,722,000,000.00
3,104,000,000.00
Total
Liabilities 24,667,000,000.00
14,790,000,000.00
8,687,000,000.00
3,104,000,000.00
Total
Equity 14,759,000,000.00
3,572,000,000.00
4,035,000,000.00
Long
Term
Debt
gross 13,556,000,000.00
10,034,000,000.00
5,263,000,000.00
1,144,814,000.00
Common
Equity
(Outstanding) 774,557,247.00
402,785,156.00
421,715,646.00
14,989,338.00
Income
Statement
Revenue 19,497,000,000.00
12,428,000,000.00
4,998,000,000.00
1,406,000,000.00
Net
Income
to
equity
Holders 2,340,000,000.00
1,563,000,000.00
728,000,000.00
77,000,000.00
EPS
-­‐
Net
Income
-­‐
Diluted 2.88
2.86
1.61
4.61
EBITD 7,220,000,000.00
9,269,000,000.00
1,204,000,000.00
607,000,000.00
Ratios
Beta 0.35
0.48
0.29
0.72
Average
(all
four
companies) 0.46
Parent
Company
Beta 0.84

27. A
Quantitative
and
Qualitative
Analysis
of
the
Repurchase
of
Stock
Between
Quebecor
and
CDP
A.
Bottausci
–
M.
Lemoine
–
Y.
Madani
EMBA
681
–
Corporate
Finance
–
Harjeet
Bhabra
John
Molson
School
of
Business
–
Concordia
University
27
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