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The Shaw Communications logo is seen at their office in Calgary in 2019.CHRIS WATTIE/Reuters

BCE Inc. made an offer to buy Shaw Communications Inc. but was unwilling to take on as much regulatory risk as Rogers Communications Inc. , which struck a deal to buy the Calgary-based telecom for $26-billion including debt, according to sources.

Although BCE, which owns Bell Canada, initially made a higher offer, Rogers went further by agreeing to a “hell or high water” clause that means it will accept any conditions set out by regulators in order to gain approval, according to four sources familiar with the negotiations.

Those conditions could include being forced to sell off not only Shaw’s wireless assets, such as customer accounts or wireless airwaves, but also some of its own. That was a risk Bell was not prepared to take, according to two of the sources. The Globe and Mail is not identifying the sources because they are not authorized to speak publicly about the matter.

If regulators flat-out reject the deal, Rogers has agreed to pay Shaw a $1.2-billion break fee. Bell offered a smaller break fee, two of the sources said.

Regulatory issues are the primary hurdle facing the acquisition, as the deal would reduce the number of wireless competitors to three from four in Ontario, Alberta and British Columbia, where Shaw’s wireless business Freedom Mobile operates. Rogers has submitted applications to the Competition Bureau, the Ministry of Innovation, Science and Economic Development, and the Canadian Radio-television and Telecommunications Commission – the three regulatory bodies that must approve the purchase.

The existence of a second bidder was first revealed in a regulatory document filed by Shaw on Friday that referred to the contender only as “Party A.” Early Saturday afternoon, The Globe reported that, according to two sources, Party A was Bell. A company spokesperson confirmed the Montreal-based telecom had made an offer for Shaw.

“We’ve made a number of successful strategic acquisitions over the last decade and look closely at opportunities that may work. We determined this opportunity wasn’t in the best interests of our stakeholders,” Nathan Gibson said in an e-mail on Saturday. Shaw and Rogers declined to comment.

In a January report about consolidation in Canada’s telecom industry, Royal Bank of Canada analyst Drew McReynolds highlighted BCE as a possible contender for Shaw, but predicted such a combination would not get past regulators “due to concentration concerns.” Bell shares a wireless network with Vancouver-based Telus Corp. and also operates a satellite television business that competes with Shaw’s. Bell, which acquired Manitoba Telecom Services Inc. in 2017, also operates in Manitoba, where Shaw has internet and cable TV customers.

In contrast, Rogers and Shaw have almost no overlap in their cable footprints; the merger would only affect competition in the wireless business, which makes up a relatively small portion of Shaw’s revenue.

Shaw chief executive officer Brad Shaw was approached by Party A’s counterpart on Jan. 6 of this year about the “strategic merits of a possible business combination,” according to the regulatory filing. No price was discussed at the meeting, which occurred nearly six months after Mr. Shaw dined with Rogers CEO Joe Natale in Calgary and discussed the possibility of a merger.

Mr. Shaw informed his company’s board about the second offer at a Jan. 13 meeting, according to the filing. At the time, TD Securities was conducting, at the company’s behest, a review of telecom industry trends and Shaw’s potential strategic alternatives. TD presented a number of options, including selling to a private-equity buyer, but the Shaw Family Living Trust said it was not interested in that option because it wouldn’t address concerns about Shaw’s inability to compete over the long term owing to its insufficient scale, according to the filing. (The family trust controls nearly 80 per cent of Shaw’s class A shares and 7 per cent of its class B shares.)

Mr. Shaw invited Mr. Natale to another meeting in Calgary on Jan. 29. “These discussions continued to be exploratory in nature and no indicative terms were proposed,” the filing says. In early February, the Shaw CEO invited both Mr. Natale and BCE CEO Mirko Bibic to submit preliminary proposals. Rogers offered $35 a share, falling short of BCE’s $37-a-share offer.

Rogers boosted its offer to $40.50 on Feb. 22, while its competitor came in at $39.25. On Feb. 27, BCE revised its offer again, matching the price being offered by Rogers, but its proposal “continued to contain certain regulatory issues that had previously been identified as being of concern,” according to the filing.

Shaw’s board discussed the two proposals on Feb. 28, concluding that BCE’s offer contained conditions that the directors found unacceptable. “Following this discussion, the board determined that it would not be prepared to recommend proceeding with Party A’s proposal unless these issues were addressed,” the filing says. “Party A’s CEO advised Mr. Shaw that Party A was not prepared to amend its proposal to address those issues.”

On March 12, Shaw and Rogers entered into an exclusivity agreement as they hammered out the details of the deal, which was announced on March 15. The final price of $40.50 a share represents a roughly 70-per-cent premium over the closing price of Shaw’s class B shares on the Toronto Stock Exchange on March 12, the last trading day before the takeover offer was made public.

The deal coincides with a time of massive spending by Canada’s telecom companies, who are rolling out fifth-generation wireless technology and expanding their broadband networks deeper into rural areas. Bell announced plans in February to boost its capital expenditures between $1-billion and $1.2-billion over two years, while Telus recently announced a $1.3-billion stock sale to help fund its investments in 5G and fibre-optic broadband infrastructure.

Rogers and Shaw have said merging would accelerate their 5G investments, allowing them to pour $2.5-billion into deploying the technology in Alberta, B.C., Manitoba and Saskatchewan. However, the deal has faced pushback from consumer advocates and some members of Parliament, who argue it would lessen competition in the wireless market.

Pierre Karl Péladeau, president and CEO of Videotron Ltd. owner Quebecor , last month told a standing committee on industry, science and technology that Freedom Mobile should be excluded from the deal, hinting his company would be an interested buyer.

If the deal falls through, Shaw will be left without crucial 5G airwaves, as the proposed merger will see it sitting out a June auction of 3,500 MHz spectrum. The lengthy regulatory process – Rogers and Shaw expect the deal to close in the first half of 2022 – also comes with the risk of employees and customers leaving Shaw, the company said in the regulatory filing.

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