A McMaster Investment Club Stock Pitch

Rating : BUY Market Capitalization 4001.4M Enterprise Value 9772.5M LTM EBITDA 1503.9M LTM Net Income 252.1M Net Debt/EBITDA 3.26x We believe Quebecor to be an excellent fit to the McMaster Investment Club’s equity portfolio. Based of off two core theses, Quebecor bodes as a prime investment opportunity over the club’s long-term investment horizon. A summary theme of this investment pitch is growth at a discount. Theses Videotron holds strong growth potential in the Canadian Telecom Market, an otherwise saturated industry The market discounts Quebecor at a heavy holdings discount, a discount that we will see reduced over our investment horizon

Quebecor An Overview Overview Thesis I Thesis II Valuation Risks Catalysts Portfolio

Executive Overview Quebecor (TSX: QBR.A, QBR.B) is a Canadian leader in telecommunications that is firmly based in Quebec and owns 75.36% in Quebecor Media  a Canadian media company with majority ownership in Videotron, TVA Group and Archambault QBR.A = Class “A” shares – 10 Voting Rights Majority owned by Pierre Karl Paladeau QBR.B = Class “B” shares – 1 vote Overview Holdings MGMT

Holdings Overview Overview Holdings MGMT Videotron is a Canadian telecommunications company integrated in television, wireless and internet services Canoe.ca provides news and entertainment via their online website Distribution Select is a Canadian record and video distributor Groupe Livre is a publishing company held by Quebecor Media BlooBuzz is a video game publisher and developer that designs games for a variety of platforms Archambault is a major retailer of music, books, DVDs and games in the province of Quebec Le Superclub Videotron is the largest remaining video store in Canada - concentrated in Quebec TVA Group is a Canadian communications company operating in broadcasting, publishing and production TVA Publications is a Quebec based magazine publishing company

CEO of Quebecor Media Group Jean-François Pruneau Management Overview Overview Holdings Pierre Dion President and CEO April 2014 to Present Policy Goal: “Our vision is to provide Canadians with a new high quality, low-cost wireless choice and real wireless competition. ” “... Under the right conditions, we are ready, willing and able to become Canada’s fourth wireless competitor.” - The 2014 Canadian Telecom Summit Manon Brouillette CEO of Videotron May 2013 to Present Policy Goal: Room to gain market share in Quebec and Canada is optimistic toward increasing mobile Internet usage “In the rest of Canada, we would be a pure-play wireless carrier, but we feel there is a place for us. But we need the appropriate conditions.” - The Globe and Mail October 2014 Julie Tremblay CEO of Quebecor Media Group Sept 2013 to Present Benoit Robert Head of Sports & Entertainment August 2014 to Present MGMT http://www.theglobeandmail.com/report-on-business/videotrons-wireless-division-heads-in-positive-direction/article20749563/ http://www.theglobeandmail.com/report-on-business/quebecor-unit-tells-crtc-it-wants-fair-roaming-rates/article20922866/ http://www.theglobeandmail.com/report-on-business/quebecor-profit-jumps-beats-expectations/article17475427/ http://www.stockwatch.com/News/Item.aspx?bid=Z-C:QBR-2216728&symbol=QBR&region=C Valuable Insight – their backgrounds, proven successes and strategic policies France Lauzière Senior VP - Content QMI Feb 2013 to Present Jean-François Pruneau CFO of Quebecor Nov 2010 to Present

The CRTC is calling…Will Vidéotron Answer? Overview Thesis I Thesis I: VideoTron Holds Immense Growth Potential in the Telecom Space Thesis II Valuation The CRTC is calling…Will Vidéotron Answer? Risks Catalysts Portfolio

Thesis I: Videotron – A Growth Story In A Limited Growth Sector Quebecor Media’s Videotron – A small telecommunications company located in Quebec, has shown immense growth potential from the start of its facilities-based approach in 2010. Based off of two historical core competencies and a competitive advantage amongst smaller players, we believe the VideoTron may be positioned to become – in some capacity - Canada’s 4th national Telecom player. Management prudency coupled with favorable regulatory body support will mitigate uncertainty risk. If a national expansion is not seen by management as a viable option, the Quebec Wireless market is still a prime opportunity for growth Overview Thesis I Thesis II Valuation Risks Catalysts Portfolio

Macro Outlook – Higher Yielding Telecoms Will Be Pressed For Growth In High Interest Rate Environment Pre-interest rate drop in 2008 yields on the 10 year treasury performed in line with most Canadian Telecom dividend yields However post-2008 until present, spreads have increased dramatically As of January 5th spread between the 10 Year treasury and Rogers (lowest yielding telecom) is ~1.68% Macro I II III Expansion Case http://www.crtc.gc.ca/eng/archive/2013/2013-551.htm Valuation remains elevated - RBC Quebec If we see hawkish interest rate sentiment in 2015 there is a possibility of marginal fixed income investors exiting the sector in favor of high yielding treasuries Quebecor is not amongst the higher yielding stocks of the telecom sector which means fixed income investors have not artificially inflated the price of the stock

Argument I: Proven Competence In Strategic Investments Videotron penetrated the competitive market of Quebec in 2010 through a facilities based approach. To date, the ~$1B investment has returned massive gains in subscribers with only a minimal loss in revenues per customer. MAcro Facilities-based approach was first piloted in September 2010 Incumbents ruled over 90% Quebec's market share CAPEX reached over 1B LTE network established September 10th 2014 Since facilities-based approach, gross wireless subscribers has seen immense growth, with only marginal loss in ARPU Indicates minimal loss in profitability per subscriber I II III Expansion Case http://www.theglobeandmail.com/report-on-business/quebecor-eyes-wireless-startup-mobilicity-analyst-says/article16328002/ Q3 2013 Quebecor Conference Call Churn data – TD November 7th Equity Research Report Quebec Mobile Telephony Subscribers vs. Mobile Telephony ARPU. QBC Quarterly Reports

Argument I: Bundling, Exclusive Content & Quebecois Identity Profitable expansion and impressive growth can be attributable to the bundling marketing tactic - essentially synergizing subscriptions in Cable, Internet, and Wireless Allows customers access to TVA exclusive content According to the Q3 2014 Conference Call 81% of residential customers bundling 2 or more services 14% of residential customers bundling 4 services MAcro I II III TVA holds exclusive content rights to some of the most popular Francophone TV entertainment Francophone Entertainment Salut! Bonour Francophone Sports QMJHL Expansion Case http://www.theglobeandmail.com/report-on-business/quebecor-eyes-wireless-startup-mobilicity-analyst-says/article16328002/ Q3 2013 Quebecor Conference Call Churn data – TD November 7th Equity Research Report Quebec Quebecor’s strong Quebecois identity makes it marginally more appealing to native Quebcecois. Dates back to the CEO Pierre Karl Paladeau (PKP) Fervant Quebec patriot and recent separatist Bankrupt global subsidiary whose demise was allegedly blamed on the English Canadian business establishment

Addition to Shareholder Value Additional Information Argument II: Proven Strategic Spectrum Acquisition Quebecor has a history of strategically acquiring valuable spectrum that has proven accretive to shareholder value Spectrum Auction Licences Bought (Purchase Price) Spectrum Information Addition to Shareholder Value Additional Information AWS -3 Auction (May 2008) 17 $1.26/MHz/POP Provides services in 3G+, HSPA and LTE Modern form of transferring wireless communication Matches the other telecoms in speed and service Greater coverage in Quebec than any other competitor One license in the GTA and later sold to Rogers for $180M Cooperation with Rogers to produce wireless networks in Quebec and Ottawa 700 MHz Auction (January 2014) 7 $0.83/MHz/POP Former analog TV spectrum Greater penetration and greater length Cannot sell spectrum for 5 years Saves money on infrastructure and upkeep Potentially attracting more consumers Bought 2 licenses in Alberta and BC Bought two licenses in Eastern and Southern Ontario Similarly to AWS, may sell 2500 MHz Auction (Est. Q2 2015) TBD Enhances existing AWS spectrum by providing more reliability Potentially decrease existing costs Possible sale in the future to incumbents Deemed to be less valuable than 700 MHz 60% to be auctioned to new entrants Macro I II III Expansion Case http://www.crtc.gc.ca/eng/archive/2013/2013-551.htm Valuation remains elevated – RBC Price per MHzPop Multiple = Sales Price / (MHz of license x population covered) - See more at: http://www.srr.com/article/spectrum-licenses-valuation-intricacies#sthash.iYuyj91o.dpuf Quebec

Argument III: Competitive Advantage -Highest Accessibility to Capital Amongst New Entrants Videotron has the highest accessibility to capital amongst new entrants. This is a necessity for a fourth national player to acquire spectrum, as well as build wireless networks Entrant Location Cash Debt Equity Other Primarily concentrated in Quebec $476.6M in cash as of Dec 31, 2013 Ability to take on the most long term debt Revolving credit facility QMI – BB grade Possible spinoff of Videotron Secondary offering Sale of several spectrums outside of Quebec Concentrated in Ontario and Western Canada In search of a potential buyer in order to facilitate future spectrum purchases $62 Million deposit by supreme court Under creditor protection Currently looking for a buyout from a foreign company Filed with the Ontario Superior Court of Justice to gain DIP by January 30th Toronto – Specifically GTA Globalive is potential funder of spectrum capital Plans to complete at least $33M for spectrum funding $160M of debt outstanding Globalive bought out Vimpelcom’s majority stake to recapitalize WIND Cordova is returning WIND to “normal” investment strategy Macro I II III Expansion case http://www.crtc.gc.ca/eng/archive/2013/2013-551.htm Valuation remains elevated – RBC http://business.financialpost.com/2014/07/28/canada-sets-jan-30-deadline-for-wireless-carriers-to-commit-to-march-spectrum-auction/?__lsa=6e55-8247 http://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf10851.html#s12 At least $33000000, given their PE firm has about 2.5 billion dollars in assets, I think we can assume less than 100 mil Quebec

Comparable Plans of Big 3 - Talk, Text and 2 GB data National Expansion : Ontario – The New Battleground We believe Ontario to be the area where VideoTron will make its first entrance as a national player. Ontario is vulnerable to a new entrant due to a lack of competition, inherent in its price discrepancies with neighbouring provinces Macro A sufficient price discrepancy exists between neighbouring provinces as seen in the pricing of Talk, Text and 2GB Data plans In Quebec and Manitoba, incumbents are challenged by MTS and Videotron In Ontario, WIND and Mobilicity are not sufficient competition to challenge the Big 3 Comparable Plans of Big 3 - Talk, Text and 2 GB data Ontario Quebec Manitoba Rogers 90 75 60 Telus 70 55 Bell I II III Rogers/Bell/Telus Websites. Wireless Plans Expansion Partnerships Pierre Dion has had numerous talks with WINDs mobile CEO Pietro Cordova throughout 2014 Non-Disclosure agreement signed with Mobilicity In 2013 the wireless penetration rate stood at 83.9% for Ontario Signals room for the market to grow case http://business.financialpost.com/2014/12/16/wind-mobiles-ceo-ready-to-bulk-up-network-regardless-of-ma-opportunities/?__lsa=9329-4d4a Quebec “Today we have an attitude of keeping our head down and working hard to pursue our objectives, and if one of the solutions is a deal with Mobilicity or Quebecor, so be it.” Pietro Cordova – WIND Mobile CEO Ontario Wireless Service Subscriber Market Share. CRTC ‘14 Annual Report

Case Study : Free Mobile Free Mobile, a new mobile entrant in France, managed to capture an impressive market share of 5.4% (2.6 million subscribers) within 6 months of launching. Sentiment Since 2000, ARCEP supported a 4th competitor in mobile market: France’s ARPU was significantly higher than anywhere else in the world 49 – 90 £/month for 2 year contracts 4th 3G spectrum license up for application – only Free Mobile submitted a qualified application Met minimum build regulations Roaming agreement with Orange Mirrors CRTC sentiment toward big 3 and prospect of 4th competitor Reserved spectrum for Videotron, obtained at a heavy discount compared to big 3 Rogers – $3291 M TELUS – $1142 M Bell – $566 M Videotron - $233 M Macro I II III Expansion Case http://business.financialpost.com/2014/01/15/videotron-could-expand-nationally-on-the-cheap-thanks-to-timid-failing-startups/?__lsa=d4b3-0afd http://www.arcep.fr/fileadmin/reprise/communiques/communiques/2009/slides-conf-3g-181209-eng.pdf Many parallels exists between Free Mobile and Quebecor – suggesting feasibility of Videotron as a 4th competitor in Canada It purchased spectrum, met minimum build regulations with a network that covered about a third of the population and struck a roaming agreement with Orange to serve customers when they were outside its coverage area. (3 competitors is not healthy for consumers) (were able to meet demands of coverage, quality service, consumer relationship, environmental protection) Quebec

Case Study : Free Mobile Entrance Prior to launching, Free Mobile signed roaming agreement to use Orange’s network at wholesale price MVNO (mobile virtual network operator) Free Mobile doesn’t own the network infrastructure it uses to service customers It allows Free to quickly penetrate region and expand coverage Orange also gets to hedge against success of Free on prevailing mobile giants Free would not be able to offer aggressive prices without agreement Macro I II Offering a “same service, lower price” model Free mobile attracted customers with a 20€/month plan that competitors were pricing at 40£/month Huge price disparity between Canadian provinces can be exploited Low cost structure Online based, no retail stores We believe that the Canadian incumbents are in the same state as the incumbents in France Increased competition will put pressure on subscriber additions and/or put pressures on ARPU III Expansion Case http://business.financialpost.com/2014/01/15/videotron-could-expand-nationally-on-the-cheap-thanks-to-timid-failing-startups/?__lsa=d4b3-0afd MVNO = operator doesn’t own the network infrastructure, it pays a wholesale price to the network owner, and resells it to its customers Quebec

Case Study : Free Mobile Aftermath Hugely popular for consumers, it acquired 5.4% market within 6 months Equalled share held by all other French MVNO combined Resulted in price wars within mobile market – the ultimate goal of the regulatory body Other mobile services suffered equally Responded by launching low cost operators under parent company Orange (Sosh), SFR (Red), Bouygues (B&You) Macro I II III Expansion Case http://business.financialpost.com/2014/01/15/videotron-could-expand-nationally-on-the-cheap-thanks-to-timid-failing-startups/?__lsa=d4b3-0afd Quebec

Quebec: A Growth Market Should Quebecor choose not to follow through with national expansion, we believe that it still has large potential for growth in the Quebec market Macro LTE Penetration Relative to the other more populated provinces Quebec has a lower LTE penetration rate – meaning a sufficient amount of the population is not accessing the LTE network Videotron has the largest LTE coverage spanning the St. Lawrence Channel (one of the most population dense areas in Canada) I II III Expansion Case http://business.financialpost.com/2014/01/15/videotron-could-expand-nationally-on-the-cheap-thanks-to-timid-failing-startups/?__lsa=d4b3-0afd Quebec

Thesis II: Short-Term Market Discounts Overview Thesis I Thesis II Thesis II: Short-Term Market Discounts Valuation Unjustified Discounts Compressing Extrinsic Value Risks Catalysts Portfolio

Thesis II: Market’s Short-term Oriented Discounts Overview Thesis I Thesis II Quebecor’s extrinsic value is being inhibited due to a short-term oriented market holdings discount. This holdings discount is only applicable in the near-term investment horizon, as relative leverage levels remain unsatisfactory and Quebecor Media is not wholly owned. In our investment horizon we are to see either the buyout of minority interests or an equity carve out (ECO) which will both raise cash on hand to increase dividend yield. Valuation Risks Catalysts Portfolio

Argument I: Higher Relative Leverage A higher than average leverage ratio is forcing the market to compress the stock price in the short term. However, Quebecor is in the process of aggressive debt pay down which will bring leverage ratios down to previous satisfactory levels Debt Pre-CDP Stake Buyout Buyout Management has lowered Net Debt/EBITDA since 2008. Spike in October 2012 due to a large buyout of NCI 3.47 Interest coverage ratio shows no threat of illiquidity Aggressive debt pay down indicates that management has committed to debt management http://www.crtc.gc.ca/eng/archive/2013/2013-551.htm Valuation remains elevated - RBC Future aggregate principle amounts due indicate an adequate amount of time to build FCF to pay off debt The present low-interest rate environment is a prime opportunity to refinance debt at lower rates 2014 2015 2016 2017 2018 >2019 101.2 212 480.4 454 362.8 3938.9

Holdings Discount Removal: Buyout of Minority Interest & Equity Carve-Out A large holdings discount severely reduces Quebecors share price. A buyout of minority interests would see this discount removed. CDP holds exit rights which could also see an equity carve-out. October 2012 - Quebecor increased its stake in Quebecor Media to 75.4% from 54.7% Net Debt/EBITDA was 2.5x Potential to buyout remaining interest when leverage ratio returns to pre-agreement levels Debt January 1st, 2019 - According to the 2012 agreement, CDP will have exit rights or the opportunity to take their interests in Quebecor Media Public An equity carve-out would give opportunity to: Pay down debt Raise dividend Revalue holdings company Buyout Historical Case Spanish bank Santander bought out minority stake (25%) in Santander Brazil to improve underperforming subsidiary Historical Case Thermo Electron made twelve ECO throughout the timespan of sixteen years 2500% increase in market value Maintained majority ownership in all spin-offs http://www.tappi.org/downloads/conference-papers/2007/07epe/07epe24.aspx

Valuation The Numbers Story Overview Thesis I Thesis II Valuation Risks Catalysts Portfolio

Discounted Cash Flow - Assumptions DCF COMPS http://www.crtc.gc.ca/eng/archive/2013/2013-551.htm Valuation remains elevated - RBC

Discounted Cash Flow - WACC DCF COMPS http://www.crtc.gc.ca/eng/archive/2013/2013-551.htm Valuation remains elevated - RBC

Discounted Cash Flow – Stock price Calculation DCF COMPS http://www.crtc.gc.ca/eng/archive/2013/2013-551.htm Valuation remains elevated - RBC

Discounted Cash Flow – Sensitivity Analysis DCF COMPS http://www.crtc.gc.ca/eng/archive/2013/2013-551.htm Valuation remains elevated - RBC

Public Company Comparable Analysis DCF COMPS http://www.crtc.gc.ca/eng/archive/2013/2013-551.htm Valuation remains elevated - RBC

Public Company Comparable Analysis DCF COMPS Discounted Cash Flow http://www.crtc.gc.ca/eng/archive/2013/2013-551.htm Valuation remains elevated - RBC

Risks to Our Investment Theses Overview Thesis I Thesis II Risks Valuation Risks to Our Investment Theses Risks Catalysts Portfolio

Thesis I: Risks Risk Mitigant Expansion is a failure Clearwire corporation, expanded in US to provide broadband. Operating loss of $7.1B over 6 years Invested in 4G instead of LTE $35/share  $1.07/share Government support Clearwire had no government support and undertook a costly investment based approach with obsolete technology. Videotron is heavily back by the CRTC to subsidize costs in spectrums. We believe Videotron will take a hybrid MVNO/investment based approach once the whole wireless roaming rates are lowered, consequentially lowering barriers to entry 4 player model has consistently failed in developed nations Australia: 4  3 Japan: 5  3 US: ATT, VZ, TMUS The Canadian government (through Industry Canada and the CRTC) favor a 4th telecommunications player. They will take measures to ensure it does not fail. Balance sheet not strong enough to finance expansion Ability to sell off non-core assets to fund expansion Thesis I Thesis II http://www.crtc.gc.ca/eng/archive/2013/2013-551.htm Valuation remains elevated - RBC

Thesis II: Risks Risk Mitigant Interest Rate Hike 81.6% of Quebecor’s debt is a at a fixed rate Quebecor Media ECO is a failure Quebecor will decide how many of their shares to take public Increase in leverage before QBA is able to buyout minority interests Aggressive paydowns of current debt will be brining down leverage ratios Thesis I Thesis II http://www.crtc.gc.ca/eng/archive/2013/2013-551.htm Valuation remains elevated - RBC

Drivers to Our Investment Theses Overview Thesis I Thesis II Catalysts Valuation Drivers to Our Investment Theses Risks Catalysts Portfolio

Thesis I: Catalysts Catalyst Result Aggressive purchases of discounted spectrum in national auction Valuable spectrum purchased which can be utilized for new networks or sold for a significant premium Wind / Mobilicity / Videotron partnership Possible Ontario and Western Canadian expansion with low upfront CAPEX and barriers to entry Heavy divestitures from News Media More cash on hand to devote to Videotron Thesis I Thesis II http://www.crtc.gc.ca/eng/archive/2013/2013-551.htm Valuation remains elevated - RBC

Thesis II: Catalysts Catalyst Result Further decreases in interest rates Lower free cash flow towards interest payments Decrease in promotions and pricings in the mobile wireless market Higher ARPU and EBITDA margins Faster paydown of long term debt Buyout of minority interests faster than expected Quebecor Media ECO is a success A large amount of cash would be raised which could be used to raise dividend payments Buyout of CDP minority interests Removal of the market’s large holdings discount Thesis I Thesis II http://www.crtc.gc.ca/eng/archive/2013/2013-551.htm Valuation remains elevated - RBC

The Fit into the McMaster Investment Club Portfolio Overview Thesis I Thesis II Portfolio Valuation The Fit into the McMaster Investment Club Portfolio Risks Catalysts Portfolio

The McMaster Investment Club Portfolio http://www.crtc.gc.ca/eng/archive/2013/2013-551.htm Valuation remains elevated - RBC Summary Add QBA to portfolio to offset the aggressive Beta of Transglobe Arbitrary portfolio beta of 0.6 chosen, but variant depending on consensus of club members