Ruth Saldanha: The stakeholders of Rogers Communications, including shareholders, have been watching in fascination as the family and companies' rifts have been made public. With rival boards, competing agendas and a court case, what should you make of the saga and what does this mean for your Rogers shares? Morningstar Equity Analyst, Matthew Dolgin, is here today to talk about that. Matthew, thank you so much for being here today.
Matthew Dolgin: Thanks for having me, Ruth.
Saldanha: Now, this situation is fluid and it's evolving, which changes almost every day. So, what are your thoughts on how it's played out so far?
Dolgin: Well, we've already looked at this from two different aspects. One, what's going on in the media and in the corporate boardroom and now, in court. And then, two, how does this actually impact the company and its future prospects. And the second part of that is where we're focused, because really, we don't think it's going to have a major impact. At least at this point, we can't determine that it would, mainly because both sides still want to finish the Shaw transaction and neither side has laid out really different visions for what the future should hold. It seems that both sides have their own views of what's best for the company and want to operate in such a manner. And therefore, whichever side wins, we don't necessarily think there's going to be a major impact on what the future holds for Rogers.
As to the first part, that's something that leads us to keep watching. And it could potentially have an impact down the road if the sides do lay out their different visions. But at this point, it's not something that to quote our long-term view, and it's just something to keep an eye on and watch it play out, because it has become really a spectacle.
Saldanha: Well, you did mention that there are two separate views and two separate agendas. From a corporate governance standpoint, are you worried at all about this episode and how risky is it for investors from a corporate governance standpoint?
Dolgin: You know, this has really brought to light something that has been the case for Rogers for a long time that we flagged before. They have a dual share class really for the purposes of allowing family control, and that's not something that's corporate governance best practices, and we've always known that to be the case. So, that's not a surprise. Now, this has played out not necessarily as we would have expected because the family is – there's a rift between them. But as far as how that makes me concerned in the future, not too much. As I mentioned, both sides seem to have the best interests of the company at heart and the reality is, most shareholders, even if they had votes, all but the largest ones, don't really have a say in what happens in the companies anyway. That's really the domain of the very biggest shareholders. And whether it's the family or institutions, they're the ones that we think will be most concerned. And so, it's something to be aware of, but not necessarily something that would lead me to think the stock should be avoided for investors.
Saldanha: Now, late last month, you actually raised your fair value estimate for the company. Has this situation been factored in?
Dolgin: Yeah. Well, we raised our fair value estimate because we use the discounted cash flow methodology. The time value of money over time, all else equal, causes our fair value estimate to go up. And that's what happened in this case because we did not change our forecast in any way. The company reported a good quarter, and our forecast is intact. As far as whether we factored this in, again, the corporate governance structure of this company has always implicitly been in our forecast. We didn't change anything explicitly because of what's going on now, again, because we don't think it's going to make a difference in the long-term operations of this company. So, our forecast is intact, and it was on our mind, or at least we're aware of it when we made that move.
Saldanha: Now, Canadian investors really love this stock and one of the main reasons for that is its consistent dividend payouts. Rogers hasn't actually cut dividends in 20 years. Should investors worry about the dividend aspect with all of these risks right now?
Dolgin: No, I don't think investors should worry about the dividend. Certainly, I don't think this rift in the boardroom would be any further reason to worry about it. The things that investors should keep in mind is that as this company builds out a 5G network and buys more spectrum, there is a lot of capital that they are outlaying. But with that said, again, I'm not concerned with the dividend will need to be cut. It's pretty well-covered, and I expect that the management will adhere to it. They may not raise it as much as they had in the past. It's been constantly $2 for the last couple of years now. But as far as it being cut, that's not something that I expect.
Saldanha: Now, you already said that both sides of this argument actually want the Shaw deal to go through. What is your implicit thought on what might happen with the Shaw deal and this entire problem right now?
Dolgin: Well, we still think it's more likely than not to occur. And again, we don't think that this drama in the boardroom is likely to impact the fate of the Shaw deal. It still does need to be approved by regulators, and it's possible that it won't happen for that reason. But we think the more likely case is that if regulators have issues, the companies, Rogers and Shaw, will deal with it, perhaps by divesting some businesses. But we expect it to go through and we don't think that what's going on at Rogers right now is going to make it less likely than it would have been before.
Saldanha: Thank you so much for joining us today with your perspectives, Matthew.
Dolgin: Thanks, Ruth.
Saldanha: For Morningstar, I'm Ruth Saldanha.
