Rogers Communications Inc. Class B (RCI.US) splashes out $3.5 billion to expand its "sports empire" and acquires control of the NBA's Toronto Raptors team.

Canadian wireless service giant Rogers Communications Inc. Class B (RCI.US) will acquire BCE Inc.'s ownership of Maple Leaf Sports & Entertainment Ltd (MLSE) for 4.7 billion Canadian dollars (about 3.5 billion US dollars), making the telecom company the controlling shareholder of Canada's most valuable sports giant, and ultimately gaining control of the NBA's Toronto Raptors and the Toronto Maple Leafs hockey team. In a statement, Rogers Corporation stated that the financing for this large deal will include some private investors and will not affect their debt leverage, although it is unclear where they will obtain the funds. BCE's parent company, Bell Canada, plans to use the proceeds to reduce its debt. Under this large transaction, the valuation of MLSE, the owner of the Toronto Maple Leafs hockey team and the NBA Toronto Raptors, also known as the "North King," is approximately 9.3 billion US dollars. The market value of the Toronto Raptors has continued to be among the top in the NBA after winning the NBA championship in 2019, which is significant for a Canadian team. Rogers Corporation's acquisition of this large equity stake is expected to be completed in mid-2025, pending approval from North American sports leagues and regulatory agencies. The Wednesday deal marks the end of discussions between these two longtime rivals who have been unlikely to cooperate fully. They have been competing for wireless, television, and internet customers in recent years and each own their own competitive sports networks, namely BCE's TSN and Rogers Corporation's Sportsnet. Rogers Corporation and BCE jointly acquired a majority stake in MLSE held by the Ontario Teachers' Pension Plan for as much as 1.32 billion Canadian dollars in 2011. Each company owns 37.5% of the shares and share local broadcast rights of the teams. Canadian businessman Larry Tanenbaum holds a minority stake in this sports company, and the Ontario Municipal Employees Retirement System indirectly holds a small stake through a company owned by Tanenbaum. "Bell initiated contact with us, inquire if we were interested in buying their ownership interest, which we are very interested in - this is the right strategic move for us," said Tony Staffieri, CEO of Rogers Corporation in a media interview, adding that this gave his company the opportunity to "consolidate control over sports assets." While agreement on this large transaction was reached relatively quickly, he said, "You can't always choose the timing, but when the opportunity arises, we seized it." On the issue of paying for the equity without increasing debt leverage, Staffieri said, "We have some financing options that are not debt structures, but we also intend to involve some private investors in the deal." The news of the acquisition of the equity prompted BCE's stock price to rise by 4.6% in the US stock market, while Rogers Corporation's stock fell by nearly 3%. Analysts have pointed out that Rogers Corporation has not yet indicated where they plan to seek external capital and may potentially reduce their overall ownership stake through an initial public offering. At least two analysts - Desjardins Securities' Jerome Dubrule and TD Cowen's Vince Valentini - envision Rogers Corporation ultimately reducing its stake in MLSE to slightly above 50%. "Third-party funding sources have not been confirmed (but they have 9-12 months to finalize details), but Rogers Corporation management insists that the acquisition will have the least impact on the company's debt leverage," analyst Valentini said in a report. He described it as a "win-win large sports deal" and noted that Rogers Corporation also owns 100% of the Major League Baseball's Toronto Blue Jays, which will help them consolidate their sports assets and raise funds from third-party investors for these target assets." Balance Sheet Issues For BCE, this deal is entirely aimed at repairing its balance sheet, which has become very strained in light of weak performance growth. "Today's announcement shows that we are focused on creating financial flexibility to support the ongoing transformation and core growth DRIVE," CEO Mirko Bibic said in another statement. In recent months, BCE's heavy debt burden has become a concern for investors, with some even questioning the potential sustainability of their dividend payments. Moody's Corporation and S&P Global, Inc. have downgraded the company's credit ratings in the past month. Bank of Nova Scotia analyst Mac Yagi said that the sale of MLSE may end speculations about potential dividend cuts in the future. Rogers Corporation and BCE currently share media broadcasting rights for regional games of the Maple Leafs and Raptors, a arrangement that may continue for the next 20 years. Staffieri said, "Bell will have the opportunity to buy content at market prices over the next 20 years. If they do not, we will seek other partners." Tanenbaum sold 20% of his private holding company to Omers last year, making the pension fund indirectly own about 5% of MLSE. The total value of the deal amounts to about 4 billion.Dollar, MLSE's estimated valuation at the time was approximately 8 billion US dollars.Former Rogers Corporation executive Keith Pelley became the CEO of MLSE earlier this year. In a statement, he said that the company has been "one of the best owners in the sports and entertainment industry for many years," and he added that he "appreciates their contributions."