Federal regulators kicked off their review of Rogers Communications Inc.’s RCI-A-T planned sale of cellphone service Freedom Mobile to Quebecor Inc. QBR-A-T on Monday, as Bay Street endorsed a deal seen as paving the way for Rogers’ proposed takeover of Shaw Communications Inc SJR-A-X.
The price of Rogers, Shaw and Quebecor shares jumped on Monday as analysts predicted the $2.85-billion sale of Freedom Mobile – Canada’s fourth-largest cellphone provider – unveiled late Friday will lead to approvals for Rogers’ $26-billion acquisition of Shaw by the federal Competition Bureau and the Ministry of Innovation, Science and Economic Development (ISED).
However, Shaw’s share price closed Monday at $37.34 on the Toronto Stock Exchange, well below Rogers’ $40.50 takeover offer. The gap signals investors remain skeptical the deal will close as scheduled, by the end of July.
Regulators have insisted any deal between Rogers and Shaw – the country’s two largest cable companies – must ensure consumers can continue to choose between four cellphone providers. The regulators said this landscape will ensure Canadians pay lower cellphone fees and get better service.
If Quebecor acquires Freedom Mobile, it would rival Rogers, Telus Corp. and BCE Inc. as national wireless platforms, adding 1.7 million subscribers in B.C., Alberta and Ontario to the 1.5 million cellphone customers it has attracted in Quebec over the past 12 years.
“Quebecor’s strong operational track record, balance sheet, expertise and asset mix will make it more difficult for the regulator to argue that the Canadian wireless competitive landscape will be materially affected by the Rogers-Shaw merger,” Desjardins analyst Jerome Dubreuil said in a report. “We believe the Quebecor/Freedom announcement increases the odds that the Rogers/Shaw merger will close.”
Analyst Adam Shine at National Bank echoed that view. “Quebecor has proven a more successful & disruptive competitor than Shaw/Freedom,” he said in a report.
Prior to Rogers bidding for Shaw 15 months ago, Mr. Shine said, “most industry observers would have presumably expected Canadian government officials and even regulators to be absolutely thrilled at the prospect of Quebecor moving beyond its 22.5 per cent market share in Quebec to pursue wireless operations in other provinces.”
On Monday, ISED Minister François-Philippe Champagne and the Competition Bureau said they were beginning reviews of the Freedom Mobile sale and declined further comment.
“We are aware of the agreement between Rogers and Quebecor,” said Laurie Bouchard, ISED’s spokesperson, in an e-mail. “As the regulator responsible for reviewing applications to transfer spectrum licenses, the Minister will await a formal application and will review it on its merits.”
Commissioner of Competition Matthew Boswell is attempting to block Rogers’ takeover of Shaw at the federal Competition Tribunal. The two telecom conglomerates have been negotiating with Mr. Boswell and his team for months on a competition remedy for their proposed union.
“As in the review of any merger, the Commissioner will assess remedy offers put before him. A remedy must eliminate the substantial lessening or prevention of competition arising from the merger,” said Competition Bureau spokesperson Marie-Christine Vézina in an e-mail.
“As the Bureau is required by law to conduct its work confidentially, including any remedy negotiations between the Bureau and merging parties, we are not in a position to comment further, nor would it be appropriate to speculate about potential outcomes,” she said.
Rogers, Shaw and Quebecor executives said last Friday the proposed sale of Freedom Mobile should satisfy regulatory concerns. The companies are attempting to close both transactions by July 31.
Rogers and Shaw have also both stated they hope to reach a settlement and avoid regulatory hearings, but are prepared to argue their case at the Competition Tribunal. The next step in the tribunal process is mediation, set to begin in early July.
Rogers and Quebecor have shared wireless networks in Quebec and the Ottawa region for many years. The partnership hit the rocks in October, when Quebecor sued its Toronto-based partner for $850-million over alleged breach of contract. Mr. Shine predicted that as Quebecor negotiates the purchase of Freedom Mobile, it will drop the lawsuit.
While Rogers is selling Freedom Mobile, the Toronto-based telecom company is attempting to win approval for keeping 450,000 customers of Shaw Mobile, after Quebecor turned down the opportunity to acquire the division. It generates approximately $100-million in annual revenue.
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