TORONTO – Canada’s two largest cable companies have very different opinions of a nine-year old agreement that had its genesis during a March 2000 dinner in Toronto between Ted Rogers and Jim Shaw – and the dispute has led the country’s two largest cable companies to court.
Rogers Communications is asking the Ontario Superior Court of Justice for an injunction blocking the $300-million sale of Hamilton’s Mountain Cablevision because Shaw signed a letter that became effective in March of 2001 which says the Calgary-based MSO wouldn’t mess in Rogers’ territory and the big red machine would stay out of the west.
(The Mountain purchase, announced in July, is also pending CRTC approval and the Commission on Wednesday made public the purchase documents, which says the price for the 41,000-customer system was $300-mil, or a cool $7,300 per sub.)
Back in 2000, Rogers and Shaw worked out a swap of cable systems where, in exchange for Rogers’ British Columbia systems (about 625,000 subs in and around Vancouver), Shaw gave up the CATV it owned in New Brunswick (almost all of the province) and Southern Ontario (Richmond Hill, Markham, Barrie, etc.) – about 609,000 subs. (That deal, valued at about $4 billion, places the per-sub number back then at about $3,300.)
Part of that agreement, however, says that for a period of 10 years neither company, after the swap was done, will “start a new, or acquire a, broadband wireline cable business,” in either of its territories. That swap closed March 8, 2001 so Rogers’ court filing says Shaw can’t buy Mountain until that day in 2011.
Shaw’s court documents insist the portion of the agreement which speaks to the territorial restrictions was never meant to be a way to restrict the companies, for a decade, from buying cable companies in each others’ regions, but only that Ted and Jim were primarily concerned with Moffat Communications and Cogeco. Rogers didn’t want to see Shaw take a run at the Audet family business, which has a significant number of subs in Southern Ontario, and Shaw wanted to Moffat’s Videon Cablesystems, which owned half of Winnipeg and Edmonton (a $1.2 billion purchase it completed in 2002).
The non-compete covenant “has been a matter of significant disagreement between Shaw and Rogers,” says Shaw Communications’ factum filed with the court.
However, while Rogers supposedly can’t buy a cable TV business west of the Manitoba/Ontario border and Shaw can’t buy east of that line, Shaw did keep the systems it already owned in Thunder Bay and Sault Ste. Marie, Ont. and Rogers looked the other way, essentially, when Shaw purchased tiny cable outfit Norcom in 2006. Rogers told Shaw then that despite the fact the western MSO didn’t ask first when buying Norcom, Rogers waived its rights under the swap agreement for the Norcom acquisition.
Even then though, according to the Rogers factum, Shaw told Rogers it considered the swap agreement over. “Shaw took the position that, ‘whatever the restrictions were contemplated at the time Shaw and Rogers entered into the Swap Letter, they have run their course given the expiry of the fifth anniversary of the closing of the cable assets.’ Rogers rejected this position and put Shaw expressly on notice that Rogers would hold Shaw accountable for any future breaches of the Swap Agreement,” reads the RCI filing.
Shaw agrees it does consider the territorial restrictions “spent” and also that the non-compete portion of the deal is likely illegal/anti-competitive anyway because it would naturally depress the purchase prices for other Canadian cable companies that would come up for sale. “There is no question that the Non-Compete Covenant is in restraint of trade,” says Shaw’s documents.
(New federal legislation coming on the books in 2010 would seem to make such an agreement against the law, adds the Shaw factum, too. See paragraph 45 on page 391, “Conspiracies, agreements or arrangements between competitors.”)
And, the swap agreement actually speaks of two five year terms rather than a single decade-long stretch because the parties wondered whether or not one 10-year term could be upheld in court, if challenged. “Both parties were concerned that the second five-year period was likely invalid and would be so found if ever judicially challenged,” reads Shaw’s factum. “The focussed on the first five years and felt it unlikely the second five years would apply.”
Whatever was explicitly contemplated or not at the time by the two men who dined together back in March 2000, isn’t a part of the Shaw or Rogers’ factums, and the Rogers one sharply criticizes Jim Shaw for sending company president Peter Bissonnette and former Shaw general counsel Margot Micaleff to be cross-examined for this case last month, even though Bissonnette was not directly involved in the swap agreement.
“Mr. Shaw has not sworn an affidavit in the current proceeding. Instead, he has left it to Mr. Bissonnette and Ms Micaleff, neither of whom was present at the initial meeting with Mr. Rogers, to give evidence about the transaction. Neither of these surrogates is in a position to speak authoritatively about Mr. Shaw’s intentions when entering into the Swap Agreement,” reads the Rogers filing.
“Mr. Shaw is well aware of the current litigation and has been in Canada for much of the time since it was commenced. In fact, he was in Toronto with Mr. Bissonnette for four days during the week of August 24, 2009. Mr. Shaw could have given direct evidence in this proceeding but has elected not to do so. In fact, he has not even reviewed the affidavits or supporting documents filed by Rogers.
“Mr. Shaw’s absence from this proceeding leaves open some surprising, and sometimes awkward, questions about the matters at issue.” For example, Bissonnette and Micaleff say the restrictions on where Shaw could go in the country “were contrary to Shaw’s business interests in spite of the fact that they were negotiated by Mr. Shaw himself and embodied in an agreement signed by him personally. It is difficult to believe that, had Mr. Shaw given evidence in this proceeding, he would have expressed the same view about the deal he negotiated with Mr. Rogers,” reads the RCI filing.
The other direct party to this deal, Ted Rogers, is deceased but the company has provided hand-written notes from Ted as evidence, where he supplied specific instructions to maintain the swap agreement as-is, says the Rogers filing.
That said, Shaw’s documents note that Ted Rogers’ son Edward, now deputy chair of the company, was at that original dinner and former RCI chairman Gar Emerson was part of the discussions building the non-compete portion – and neither of them were made available to give affidavits for this proceeding either.
“(T)he court should not admit into evidence the triple or quadruple hearsay evidence relied upon by Rogers in the form of excerpts from the late Ted Rogers ghost-written autobiography,” reads Shaw’s factum. “Rogers deliberately chose not to tender evidence from witnesses with firsthand knowledge of the facts described in Mr. Rogers’ ‘autobiography’ and of the events of March 21 and 22, 2000 – including Gar Emerson… as well as various lawyers and others in attendance at the meetings… and Edward Rogers… and thus it deliberately chose to avoid subjecting those facts to meaningful cross-examination.”
Shaw also insists that Rogers’ 2005 acquisition of Sprint Canada, extending its telecom footprint nationwide, and the fact Rogers Wireless offers internet service out west in competition, means the swap agreement provisions have been obliterated.
“Rogers has for several years delivered home telephone, Internet and video service in Western Canada, using its broadband wireline cable infrastructure to do so,” says Shaw.
Rogers counters that Sprint isn’t a CATV company, which the swap agreement states, so it is not violating the deal by offering telecom, data and wireless services in the west. Just so long as it stays out of traditional cable TV.
The judge in the case has promised to rule quickly.
