Rogers RCI-B-T is scrambling to rescue its $26-billion takeover of Shaw by lining up a suitable buyer for Shaw’s SJR-B-T wireless carrier Freedom Mobile after Canada’s competition watchdog vowed to take steps to block the merger of the country’s two largest cable networks.
The Competition Bureau notified Rogers Communications Inc. on Friday that it plans to oppose the Toronto telecom giant’s takeover of Calgary-based Shaw Communications Inc., prompting the two companies to push back the deadline for closing the deal from June 13 to July 31.
The companies said in a statement early Saturday morning that they remain committed to the deal and plan to oppose the application by Matthew Boswell, the Commissioner of Competition.
The bureau will file its reasons for blocking the deal as early as Monday, according to analysts. They said the regulator’s major issue is ensuring Rogers sells Shaw’s Freedom Mobile division to a new owner that will make a long-term commitment to ensuring competition in cellphone markets. Freedom is the country’s fourth largest wireless carrier with roughly two million customers in Ontario, Alberta and B.C.
The priority for Rogers and Shaw is finding a Freedom buyer that satisfies the Competition Bureau and the Department of Innovation, Science and Economic Development (ISED), rather than engaging in hearings that could take months to play out, according to sources familiar with the process. The Globe and Mail is not identifying the sources because they aren’t authorized to speak publicly about the matter.
Shaw’s stock price is expected to drop when trading begins on Monday, according to analysts at investment bank Cowen Inc., as investors react to Friday’s news that the closing of the deal is delayed and there is an increased possibility that the deal falls apart. Analysts at CIBC said in a report: “We do believe that a deal that harms Rogers’s wireless franchise could make them reconsider the transaction.”
On Friday, Shaw stock closed at $37.56 on the Toronto Stock Exchange, a 7-per-cent discount to Rogers’s $40.50-per-share takeover offer. If the takeover fails, Rogers owes Shaw a $1.2-billion break fee.
Rogers has been trying to sell Freedom for several months and has presented regulators with potential buyers that include Stonepeak Infrastructure Partners, a New York-based private equity fund that owns rural internet provider Xplornet Communications Inc.
Rogers also began negotiations on Freedom last week with Montreal-based Quebecor Inc., The Globe and Mail reported on Friday. Quebecor is a significant player in Quebec’s cellphone market and chief executive Pierre Karl Péladeau has openly discussed an interest in acquiring Freedom as part of a national expansion.
Over the weekend, analysts outlined scenarios for Rogers to navigate regulatory hurdles. The telecom company needs to win approval from the Competition Bureau and ISED, Cowen said in a report.
“We see two paths to deal completion: (1) Rogers goes tail between its legs to Quebecor and works out a divestiture of Freedom; (2) ISED approves the divestiture to Stonepeak and Rogers closes the Shaw transaction while fighting the Competition Bureau in front of the tribunal,” Cowen said.
The Toronto-based telecom’s negotiations with Quebecor come after the Montreal-based company’s Videotron Ltd. division sued Rogers for $850-million last October, alleging breach of contract on the companies’ shared wireless network in Quebec and Ottawa.
“Given the history between the companies, we do not believe that Rogers would have reached out if it had not been mandated by the Bureau,” said analysts at CIBC. “In a scenario that Rogers is required to sell to Quebecor, we expect that Quebecor could negotiate an attractive deal for the assets, which we value at $3.74-billion.”
Mr. Péladeau feels that he has the upper hand in the discussions because he has other options for fulfilling his ambitions of turning Quebecor into a national wireless carrier, according to a source familiar with the discussions. The Globe is not identifying the source because the person is not authorized to speak publicly about the matter.
For instance, Videotron, which spent $830-million on key 5G wireless airwaves in the most recent federal auction, could expand outside of its home province of Quebec by leasing wireless network access as a Mobile Virtual Network Operator, or MVNO, under the new regime put in place by Canada’s telecom regulator.
Senior executives at Quebecor are concerned about being used as a stalking horse to drive up Freedom’s value, and feel that certain conditions of the confidentiality agreement that Rogers has asked them to sign are unacceptable, the source said.
Globalive Capital chairman and Freedom Mobile founder Anthony Lacavera, who has offered $3.75-billion to buy back the wireless carrier, has raised similar concerns about the confidentiality agreement, which he outlined in a letter to Ottawa in March. According to Mr. Lacavera’s letter, the agreement contains “extraneous restrictions” around financing and communications with regulators surrounding the deal.
Freedom Mobile’s growth stalled in its most recent quarter. Shaw added 8,632 net new postpaid wireless subscribers during the quarter – significantly fewer than the 75,069 it added during the same quarter last year. (Postpaid subscribers are those who are billed at the end of the month for the services they used, versus prepaid customers, who pay upfront for wireless services.)
A spokesperson for the Competition Bureau said the agency has yet to file its application and will “release more information regarding our investigation in due course.”
“As we are required by law to conduct our work in private, we are not in a position to comment further,” Amy Butcher said in an e-mail.
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