Canada-based Rogers Communications Inc. (RCI) plans to repurchase 3.2 million class B (non-voting) shares. The shares planned to be purchased are currently trading at a discount totaling $101.56 million.
These class B shares will be acquired privately in an arrangement with a third party dealer. Ontario Securities Commission, which administers and enforces securities legislation in the Canadian province, has issued exemption orders relating to these purchases of shares. These privately-purchased Class B shares will also be included in shares, which Rogers intends to purchase through the normal bidding process.
In order to increase its shareholders’ wealth, the Board of Directors of Rogers Communications has recently taken two important decisions. Firstly, management raised its annualized dividend rate by 11% to C$1.42 from its existing C$1.28 for every Class A Voting and Class B non-Voting shares, effective immediately. Secondly, the Board of Directors has authorized a share buyback program of C$1.5 billion within the next 12 months.
In synergy with the share buyback plan, the company has already repurchased around 33.9 million Class B shares. These shares were repurchased in two ways. Firstly, approximately 16.3 million shares were repurchased via issuer bid exemption orders issued by the Ontario Securities Commission. Secondly, 17.6 million shares were repurchased through the normal bidding process.
We believe that increased demand for smart phone devices, strong balance sheet and share buyback plan will drive the stock upward. However, we expect that intensifying competition in the wireless market may result in cut throat price competition as most of the new entrants are ready to offer low-price service in order to gain market share.
Incumbent competitors such as BCE Inc (BCE) and Telus Corporation (TU) have already launched iPhone 4. Furthermore, closest cable TV rival Shaw Communications Inc. (SJR) has decided to enter the lucrative wireless market of Canada. These factors will supposedly hurt the company’s profitability going forward, in our view.
We, thus, maintain our long-term Neutral recommendation for Rogers Communications Inc. Currently, Rogers Communications Inc. has a Zacks #3 Rank, implying a short-term Hold rating on the stock.
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