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A pedestrian passes the Rogers Communications building in Toronto on March 15, 2021.Melissa Tait/The Globe and Mail

Rogers Communications Inc. will pay the Shaw family in a different manner than other shareholders of Shaw Communications Inc. , a move that splits Shaw’s ownership base in two and gives the controlling family the potential to benefit from a rise in Rogers’ share price.

In selling the deal to shareholders, both companies have stressed that everyone is being treated equally, because all shareholders are receiving $40.50 in value for their Shaw shares. However, the Shaw family will receive 60 per cent of its total payment in the form of Rogers shares – a number that is fixed no matter how Rogers’ share price moves before the deal closes – while all other owners will receive $40.50 in cash.

The divide could create complications if Rogers’ stock price continues to rise. The acquirer’s shares closed 3.4 per cent higher on Monday, which means the Shaw family’s stake, amounting to 23.6 million shares, is already worth more while all other shareholders haven’t benefited in the same fashion.

Canadian securities laws frown upon unequal treatment of shareholders in a business combination, and regulators demand that in a scenario such as this one, a majority of minority shareholders must vote in favour of the deal. Such a vote is scheduled for May.

However, provincial securities regulators have opined on the protection of minority shareholders before, and while acknowledging that a vote addresses the issue, the watchdogs have written they are “of the view that, as a general principle, security holders should be treated equally in the context of a business combination, and that differential treatment is only justified if its benefits to the general body of security holders outweigh the principle of equal treatment.”

Rogers and Shaw declined to comment for this story.

Although Rogers’ shares climbed higher Monday, it is possible they will lose value over time, which would hurt the Shaw family. It is also possible that minority shareholders will be happy to take their cash and run, considering Shaw’s shares were trading below their price in 2007 before the takeover was announced.

And while the deal treats shareholders differently, it is not structured with a predetermined premium for the Shaw family, whereas BCE Inc. agreed at the very outset to pay more per share to the Greenberg family that controlled Astral Media when it bought the media company in 2012.

However, there is an army of hedge funds and activist investors who prey on situations such as this one, and Rogers and Shaw are at risk of piquing their interest should Rogers’ stock keep rising ahead of the shareholder vote. In that scenario, funds could buy enough shares to block the deal’s approval and demand more money to compensate for the extra value the Shaw family has gained.

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