Big deal stuck in neutral

TORONTO -- It makes huge profits, carries all kinds of prestige and only comes for sale every other generation or so.

Then why is MLSE, the umbrella company that owns the Toronto Maple Leafs, Toronto Raptors, Toronto FC, the Air Canada Centre and various other sports, broadcast and real estate holdings, still on the market?

The business – valued at as much as $2.1 billion and a cash cow despite teams that routinely languish outside the playoffs – has been on the block officially for six months and unofficially for much longer.

But with the opening of the NHL season just a week away, the Ontario Teachers Pension Plan remains the owner of 79.5 per cent of the company.

"For (Teachers) it’s a very large percentage of their portfolio because the value is so big," said one Bay Street veteran with insight into the business. "But it’s awfully ill-liquid. It’s a hard property to sell at the right price."

Teachers have steadfastly refused to comment on the process as has Larry Tanenbaum, the construction magnate who owns the remaining 20.5 per cent of the business as well as a right of first refusal on the Teachers’ shares.

Tanenbaum has told those close to him that he has no plans to sell his share, signaling that any buyer would likely have to reach an understanding with him before closing with Teachers.

Failing that, he has the right make his own deal for Teachers’ shares, a process that wouldn’t begin until Teachers brought a deal to him and Tanenbaum rejected it.

Richard Peddie, MLSE’s long-time chief executive officer is also playing it close to the vest, even as a potential sale remains an obstacle in the company’s search for his replacement following his retirement at the end of December.

"It’s between the shareholders and Teachers and (investment bankers) Morgan Stanley," Peddie said. "It’s a real sensitive time. They’re still exploring the sale, it’s not dead at all but it’s a big number and a complex deal with lots of approvals that will ultimately be necessary and that will involve people well above my pay grade."

It was in March that Teachers announced they were exploring the sale of their stake in MLSE and hired New York-based investment banker Morgan Stanley to find a buyer.

So far, the only transaction has been the pension fund buying up the 13.5 per cent share that belonged to TD Bank. That deal closed earlier this month for between $243-and-$283.5 million, according to sources, reflecting a $1.8-to-$2.1-billion valuation for the entire business.

The purpose of that deal, say insiders, was to streamline the sale of the larger chunk when a buyer came forward. There was some thought the sale by TD was a signal that there was a buyer lined up.

"Teachers wanted to deliver 80 per cent to a buyer; they were intent on selling," said the Bay Street source. "They were running a process."

What stage that process is at is unknown, though late last month a source told me that there were multiple bidders looking at the possibility of purchasing Teachers’ interest.

Logic suggests that the potential suitors would include Rogers Communications Inc. (which owns Sportsnet) and BCE Inc.’s Bell Media (owners of TSN) given MLSE’s rich trove of live sports programming.

Similarly it makes sense that the two media giants – should they be interested – play a waiting game.

"The dynamic you’ve got are buyers who don’t want to bid against themselves and a seller who doesn’t want to sell unless they get the price they want," said an investment banker with experience in the sale of sports franchises. "It’s tough to make a deal in that environment."

Adding to the challenge is that if MLSE is not bought by a media company seeking content, it is an unwieldy and expensive property to get swept up as a rich man’s toy.

"One of the things that make it difficult to sell is that a traditional buyer of these properties is an ego buyer, but the ego buyer of the Leafs may not be the ego buyer for the Raptors," said the Bay Street insider with ties to MLSE. "The other thing is, if you’re an NBA ego buyer, do you want Toronto?"

The possibility remains that the business stays in the hands of the Teachers for longer than expected. Given that it generates a reported $100 million in profits on revenues of $500 million, they’re in no rush.

"They’re the farthest thing from a distressed seller," said the investment banker.

Which means that Toronto sports fans – starved for playoff success on the ice, floor and field under Teachers' watch – may have to be prepared settle for more of the same in the ownership suite.

At least for now.

Michael Grange will provide insight and analysis on all the top stories in sports.