The Competition Tribunal hearing into the proposed $26-billion merger of Rogers Communications Inc. RCI-B-T and Shaw Communications Inc. SJR-A-X has shifted to the potential cost savings that would be generated by combining Canada’s two largest cable companies.
Cost savings, or efficiencies, are a critical issue because Canadian competition law allows a merger to close if it results in lower total costs for the combined business – even if the merger lessens competition. The provision in question is called the efficiencies defence.
Rogers and Shaw are not publicly disclosing the dollar value of the efficiencies that they expect their merger to generate, although several witnesses have testified on behalf of the companies with regards to these calculations. That testimony has occurred largely out of the public eye, during confidential sessions, and documents relating to the expert testimony are heavily redacted.
Shaw Communications wireless growth slows as company awaits verdict on $26-billion takeover by Rogers
The Competition Bureau is asking the Competition Tribunal to block the proposed merger of Rogers and Shaw, arguing that it would result in less competition in the wireless market, leading to higher cellphone bills and poorer service.
Rogers and Shaw have agreed to sell Shaw’s Freedom Mobile to Quebecor Inc. for $2.85-billion to prevent their merger from eliminating Canada’s fourth-largest wireless carrier. The cable companies argue that Freedom would be a stronger competitor in Quebecor’s hands, while the competition watchdog says the merger would weaken Freedom because Rogers is set to acquire a number of assets, including infrastructure and personnel, that currently support the wireless carrier.
Matthew Boswell, Canada’s Commissioner of Competition, has been a vocal opponent of the efficiencies defence, arguing at the Canadian Bar Association’s conference earlier this year that the provision enables high levels of economic concentration in the economy – “even monopolies.”
Earlier this month, Ottawa formally launched a review of Canada’s competition laws. The review will consider the scope of the Competition Act, whether additional penalties are needed and how competition policy should address digital and data-driven markets.
In recent days, the Competition Tribunal, which adjudicates on matters of civil competition, has heard from Andrew Harington, an accountant retained by Rogers to calculate the cost savings that would be created by the merger.
The efficiencies calculated by Mr. Harington are not publicly disclosed, although several of the categories of efficiencies are unredacted in the public version of his report. Those categories include labour, real estate, marketing, IT and savings relating to integrating the two companies’ networks.
The companies would also save on administrative costs related to being a public company, such as director fees, audit fees and insurance costs, according to Mr. Harington’s report.
During cross-examination, Mr. Harington was asked whether he deducted the retention bonuses that will be paid to Shaw executives from the efficiencies.
Shaw president Paul McAleese is set to receive $5-million for staying at the company until the deal closes, while Trevor English, Shaw’s chief financial and corporate development officer, is set to receive a $7.5-million retention award.
In total, the retention packages will cost the company up to $50-million, said Paul Klippenstein, counsel for the Competition Bureau.
Mr. Harington said the he did not deduct the bonuses from the efficiencies because they are not relevant to the efficiencies calculation, which factors in what would happen after the merger closes.
“A retention bonus is there, literally as it’s described, to retain people. So it’s paid to keep people in their positions so the business can continue to operate,” Mr. Harington said.
Rogers executives are also set to receive bonuses in connection with the merger. Earlier during the hearing, Dean Prevost, the Toronto-based telecom’s president of integration, accidentally disclosed that he is set to receive a $2-million bonus – a figure that was previously confidential.
Marisa Fabiano, a senior vice-president of finance at Rogers, has also testified regarding the anticipated efficiencies during in-camera, or confidential, sessions. Ms. Fabiano, who is also the head of Shaw integration for Rogers’s integration management office, said in her witness statement that she has been involved in modelling potential synergies and cost-saving measures relating to the merger from the outset. Her witness statement is almost entirely redacted.
The tribunal has also heard from a number of industry and economic experts who have provided evidence on behalf of Rogers and Shaw. Those experts have challenged several of the Competition Bureau’s assertions, including that Shaw’s other wireless brand, Shaw Mobile, was a disruptive competitor in the marketplace and that owning a cable network is essential to being an effective wireless competitor.
Rogers and Shaw are aiming to complete their merger by the end of the year, with the possibility of extending their deadline to Jan. 31.