Rogers Communications has signed a deal to buy Shaw Communications in a transaction valued at $26 billion, including debt. This is significant as it would create Canada’s second biggest cellular and cable operator; however, it is likely to face stiff regulatory scrutiny. According to Refinitiv data, this would be the biggest deal in telecoms history since BCE completed the spinoff of its stake in Nortel Networks in a transaction valued at $88.7 billion in 2000.
Rogers will pay $40.50 in cash for each of Shaw’s issued and outstanding class A and class B shares under the plan. Shaw shares increased 42 percent to $34 on Monday but traded significantly below the offer price suggesting doubts about the deal. Shares of Rogers were also up seven percent at $64.
“It was always talked about that Rogers and Shaw would eventually get together. And for 30 years I’ve heard about it,”
Patrick Horan, a portfolio manager at Agilith Capital, told CBC’s Meegan Read on Monday.
“But today’s the day it actually happened.”
Shaw is currently Canada’s forth biggest telecom by owning Freedom Mobile and Shaw Mobile in Alberta, B.C. and Ontario. By acquiring Shaw Rogers would be able to take Telus’ No. 2 spot and take on market leader BCE Inc., the publicly traded holding company for the Bell Canada group of companies.
This is beneficial for Canada because the transaction includes 3,000 net new jobs and potential regional headquarters in Calgary. Furthermore, Rogers will invest $2.5 billion in 5G networks over the next five years across Western Canada. They also plan to create a new $1 billion fund dedicated to connecting rural, remote and Indigenous communities across Western Canada to high-speed internet service.
The deal is expected to close in the first half of 2022 and requires shareholder approval. It is subject to other customary closing conditions and approvals from Canadian regulators. The deal will also face review by the independent Competition Bureau of Canada, the Canadian Radio-television and Telecommunications Commission (CRTC), as well as the federal department of Innovation, Science, and Economic Development (ISED). The review will focus on
“affordability, competition, and innovation”
according to Canadian Innovation Minister François-Philippe Champagne.
High cellphone bill complaints
Canada’s cellphone bills are amoung the highest in the world and the telecoms industry came up during the last federal election. Prime Minister Justin Trudeau’s minority Liberal government ordered Canada’s top three telecom operators, which together control 89.2 per cent of the market, to cut prices on their mid-range wireless service plans by 25 percent within two years or face regulatory action in March 2020. Rogers pledged to offer affordable wireless plans and will not raise wireless prices for Freedom Mobile customers for at least three years after the closure of the deal. Nevertheless, Laura Tribe, executive director of consumer advocacy group OpenMedia, believes that the government shouldn’t approve the deal because Canada needs more competition.
“Over the years, we’ve seen competitor after competitor swallowed up by the Big Three. The result is always the same — more profits for the Big Three, worse plans and less choice for Canadians. We can’t afford this deal”
Few details were revealed addressing how Rogers and Shaw expect to achieve $1 Billion of synergies from mostly cost savings. Nevertheless, they mentioned that savings in operating expenses will likely be more significant than savings from capital spending on equipment.
Rogers chief financial officer Tony Staffieri said the company was not looking to sell cable firm Cogeco, in which it owns a 34 percent stake, or any other assets. However, the joint news conference made it clear that the leadership of the two companies believe there will be great benefits from the combination.
“While unlocking tremendous shareholder value, combining [the] companies also creates a truly national provider with the capacity to invest greater resources expeditiously to build the wireline and wireless networks that all Canadians need for the long term,”
Shaw executive chair and CEO Brad Shaw said in a statement.
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