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Shaw shares surged after the company agreed to a $26-billion takeover by Rogers earlier this year.Melissa Tait/The Globe and Mail

Shaw Communications Inc. shares surged earlier this year after the company agreed to a $26-billion takeover by Rogers Communications Inc. – yet the share price has lagged the takeover price and the boardroom drama unfolding within Rogers may be making matters worse.

Shaw’s share price has retreated about 4 per cent since Oct. 8, when The Globe and Mail reported that Rogers chairman Edward Rogers had attempted to unseat the telecom giant’s chief executive officer, Joe Natale.

Since then, Rogers’s board voted to remove Mr. Rogers as chair this week and Mr. Rogers is attempting to appoint new directors, adding to the boardroom turmoil.

Shaw shares closed on Friday at $35.59 in Toronto. That’s more than 12 per cent below the price of $40.50 a share that Rogers agreed to acquire Shaw when the deal between the two companies was announced in March – a curious discount given that observers expect that the deal will proceed.

“The market has definitely said that there is more of a risk to this takeover not happening than there was prior. But that’s probably creating an opportunity, because it does seem like the deal is going to go through regardless,” said Greg Taylor, chief investment officer at Purpose Investments.

Both companies have agreed on the takeover, potentially giving Rogers a long-desired national wireless platform and enormous cost savings. But regulators must still sign off amid simmering concerns about the deal’s impact on competition within Canada’s narrow telecommunications sector.

These concerns have weighed on Shaw’s share price for several months, if the discount between the current share price and the takeover price is any indication. The price has not rallied higher than $37.58 this year – a 7.2-per-cent discount to the takeover price. At one point, in late March, the discount stretched to more than 19 per cent.

Investors now have to consider at least one additional risk. Credit rating agencies could downgrade Rogers, complicating the company’s efforts to raise $20-billion to complete the deal – a concern that company directors raised in a letter this week.

“While we are not downplaying the risk of higher financing cost for Rogers, our understanding is financing is not a condition to the deal,” Jeff Fan, an analyst at Bank of Nova Scotia, said in a note.

Nonetheless, investor confidence may be rattled, and it’s not just showing up in Shaw’s stock.

Though Rogers’s share price has held up relatively well over the past two weeks, investors largely ignored the company’s upbeat third-quarter financial results, released on Thursday.

Rogers added 175,000 net new postpaid wireless subscribers, who are billed at the end of each month, during the quarter. That was well ahead of estimates. As well, the rate of customer turnover, or churn, declined to record-low levels. Yet the share price fell 1.7 per cent on the day the results were announced.

What’s more, the shares have been underperforming peers so far this year. The share price of Rogers has risen 1.3 per cent year-to-date, while Telus Corp. is up 10.6 per cent and BCE Inc. is up 16.1 per cent (not including dividends).

Part of the problem here, according to analysts, is that Rogers is more sensitive to pandemic-related slowdowns because of its heavier reliance on roaming revenue, which has been hit owing to travel restrictions. They expect that this headwind will turn into a tailwind, though, as travel activity returns.

“We reiterate that Rogers has a notably higher pandemic sensitivity … which results in a lagged recovery in financials versus BCE and Telus,” Aravinda Galappatthige, an analyst at Canaccord Genuity Capital Markets, said in a note.

Mr. Fan pointed out that the valuation of Rogers’s stock has been contracting relative to peers since 2019, or before the boardroom uncertainty, the pandemic and the Shaw takeover deal.

He estimates that the current valuation discount – based on comparing enterprise value with estimated EBITDA (or earnings before interest, taxes, depreciation and amortization) – is 12.3 per cent, which is lower than the previous valuation dip in 2018.

“We believe the recent troughs in 2018 and 2021 (prior to the boardroom drama) were due to the market’s lack of confidence in execution,” Mr. Fan said.

Far from agreeing with this assessment, though, he thinks the stock is a good buying opportunity.

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