The Federal Court of Appeal has dismissed the Competition Bureau’s challenge of Rogers Communications Inc.’s RCI-B-T proposed $20-billion takeover of Shaw Communications Inc. SJR-B-T, bringing a deal that has faced repeated hurdles for close to two years a major step closer to the finish line.
Final approval for the takeover, which would combine Canada’s two largest cable networks and create an opportunity for Montreal-based telecom Videotron Ltd. to expand its business westward, now rests with federal Industry Minister François-Philippe Champagne.
Mr. Champagne said in a statement on Tuesday after the court ruling that he will issue a decision “in due course.” In order to approve the transaction, Mr. Champagne has to allow the transfer of Shaw’s wireless licences to Quebecor Inc.’s QBR-B-T Videotron, which has struck a deal to acquire Shaw’s Freedom Mobile wireless carrier for $2.85-billion.
The federal government has said its priority is to ensure that the deal between Rogers and Shaw doesn’t eliminate Freedom, Canada’s fourth-largest wireless carrier, which has been credited with helping to drive down wireless prices.
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The minister said Tuesday that he is reviewing the federal court’s ruling closely. “Promoting competition and affordability in the telecom sector has been – and remains – my top priority,” he said.
Mr. Champagne has previously said that, if he were to approve the transfer, Videotron would be expected to hold on to Shaw’s wireless spectrum licences for at least 10 years and commit to bringing down cellphone bills outside of Quebec, its home market. (Spectrum refers to the airwaves used to transmit wireless signals.)
The House of Commons industry and technology committee will hold a second public hearing on the takeover on Wednesday. The committee, which is made up of Liberal, Conservative, New Democratic and Bloc Québécois MPs, recommended against the deal early last year, before Rogers and Shaw had agreed to divest Freedom. The committee’s recommendations are non-binding, but could put pressure on Mr. Champagne.
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Shares of Shaw shot up 2.8 per cent, or $1.07, to $39.50 on the Toronto Stock Exchange after it became known that the deal had cleared a major legal hurdle. Rogers stock rose nearly 3 per cent, or $1.90, to close at $66.49.
Rogers and Shaw are aiming to close their deal by Jan. 31. Lawyers for both companies have cautioned that the takeover could fall apart if it doesn’t close by that deadline.
The Competition Bureau’s appeal sought to overturn an earlier decision by the Competition Tribunal, which found that the deal was unlikely to substantially increase wireless prices. The bureau argued that the tribunal made a number of legal errors in approving the takeover late last year, and that the tribunal’s decision to focus on the divestiture of Freedom to Videotron circumvented Canada’s competition laws.
The tribunal is a quasi-judicial body that adjudicates cases brought by the bureau, an independent law-enforcement agency that seeks to protect competition among businesses in Canada.
In a decision delivered from the bench on Tuesday, Justice David Stratas of the Federal Court of Appeal dismissed the Competition Bureau’s arguments as being without merit.
“Even if the Competition Tribunal erred on the narrow legal points the commissioner now raises in this court, we are not persuaded that the result would have been different or could have been different,” Justice Stratas said. “Thus, it would be pointless to send this case back to the Competition Tribunal for redecision.”
The bureau’s position was that because Rogers and Shaw announced their agreement to sell Freedom only after the agency had already filed its application to block the takeover, the tribunal should have weighed the impact of the proposed deal between Rogers and Shaw alone, before considering the divestiture. Doing so would have put the burden on the cable companies to prove that the sale of Freedom to Videotron addresses any potential reduction in competition resulting from the takeover, the bureau had argued.
But the federal court said that “examining the merger alone – a merger that, by itself, will not and cannot happen without the divestiture – would be a foray into fiction and fantasy.”
The competition watchdog also argued that the tribunal ignored evidence from experts that the takeover would materially increase wireless prices for Canadians, and that it erred by considering a series of agreements between Rogers and Videotron that the bureau deemed legally unenforceable.
Matthew Boswell, the Commissioner of Competition, said in a statement on Tuesday that the bureau is “truly disappointed” by the decision but will not be seeking leave to appeal to the Supreme Court of Canada.
“Although today’s developments are discouraging, we stand by the findings of our investigation and the decision to challenge the merger. We brought a strong, responsible case to the Tribunal after conducting a thorough examination of the facts,” he said.
Rogers, Shaw and Videotron welcomed the appeal court’s “clear, unequivocal and unanimous” decision in a joint statement.
“We continue to work with Innovation, Science and Economic Development Canada to secure the final approval needed to close the pro-competitive transactions and create a stronger fourth wireless carrier in Canada and a more formidable wireline competitor,” the companies said.
John Lawford, executive director and general counsel of the Public Interest Advocacy Centre, an Ottawa-based consumer advocacy group, said he was “horrified” by the court’s “instant dismissal” of the appeal.
“The public can only be suspicious that the powers that be want this deal to close – even if it means a decade of high wireless and internet prices for Canadians,” he said in a statement.
“We also believe that the Court’s ruling means the Canadian Competition Act is utterly broken and needs to be radically rewritten to actually provide tools to block anticompetitive mergers.”
Alexandra Posadzki
Irene Galea