What happened
Shares of Canadian telco Shaw Communications(NYSE: SJR) ended Wednesday's trading session up 7.5% in response to favorable comments from Canada's Minister of Innovation, Science and Industry Francois-Philippe Champagne. While far from a full-blown approval of the deal, Champagne's statement released late Tuesday details the divestitures that will need to be made for Rogers Communications(NYSE: RCI) to move forward with its intended acquisition of Shaw. Rogers shares also rallied on the implication of the statement, to the tune of 6%.
So what
The story began in March of last year, when Canada's cable, phone, broadband, and wireless outfit Rogers announced it had reached an acquisition agreement with Shaw Communications valuing the latter company at $26 billion.Doubts regarding the permissibility of the deal surfaced immediately, and lingered even after this past August's agreement to sell Shaw's Freedom Mobile to Quebecor(OTC: QBCR.F) in order to steer clear of an anti-competitive impasse.
Champagne's official statement, however, lays out a clear path for the merger to move forward. The Minister of Innovation, Science and Industry only adds that Quebecor must agree to hold the wireless licenses in question for at least 10 more years, and that the wireless telecom outfit is expected to offer lower prices to customers in Ontario, Alberta, and British Columbia. Provided these conditions are met, Champagne's office appears willing to green-light the deal.
The matter is now in hands of Canada's Competition Bureau for discussion that will begin on Thursday. In that the court operates under Champagne's purview, though, a fruitful negotiation for both the buyers and sellers is anticipated.
Now what
It's the win that both companies as well as their shareholders were hoping for.
While the sale of Freedom Mobile to Quebecor is an accommodation neither Shaw nor Rogers preferred to make, it was an inevitable one that facilitates a much more important union. Not unlike the United States' telecom and cable industries, Canada's telcos are under increasing pressure to improve profits by creating new scale-based synergies.
And yet, the increased likelihood of this merger's approval doesn't make either company remarkably more attractive than it was prior to yesterday afternoon's announcement. Anyone not yet invested in Rogers or Shaw may want to remain on the sidelines a bit longer. Not only will this allow the two overheated stocks to cool off, but will also allow the market more time to consider additional commentary from or about the discussions with Canada's Competition Bureau. There are still a great number of details and certainties missing here.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends ROGERS COMMUNICATIONS INC. CL B NV. The Motley Fool has a disclosure policy.
