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Shaw Communications Inc. Class B shares traded well below the $40.50-per-share takeover offer made by Rogers Communications Inc. on Monday, in a sign that investors are concerned regulatory scrutiny could get in the way of the deal.

Shaw Class B non-voting shares closed at $33.85 in Toronto – up 41.6 per cent for the day, but $6.65 short of the offer price. However, Shaw Class A voting shares, largely owned by the Shaw family, who have agreed to the deal, traded closer to the takeover price and closed at $38.26, while Rogers Class B shares rose 3.4 per cent to $61.57.

“I would say that the Canadian regulator has been even more aggressive than the U.S., in terms of inciting competition,” said Ryan Bushell, president and portfolio manager at Toronto-based Newhaven Asset Management, which owns a stake in Shaw. Mr. Bushell said there could be political concerns hanging over the proposed deal as well. “No one looks badly upon a government that seems to beat up on the telecom companies,” he said.

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The takeover would add the Western Canadian operations of Calgary-based Shaw, currently Canada’s fourth-largest wireless player, to Toronto-based Rogers’ sprawling telecom operations.

But a key issue is that the combination will further limit consumer choice as the number of wireless players falls from four to three in Ontario, Alberta and British Columbia, three provinces that account for more than two-thirds of the Canadian population.

“As to industry implications, we think consolidation in the sector would be a net positive for other wireless operators. However, that assumes the transaction is approved in its current form, which is no sure thing given the longstanding regulatory conditions that have encouraged competition in the sector,” Tim Casey, an analyst at BMO Nesbitt Burns, said in a note.

Rogers expects that the combination of the two companies will accelerate investment in 5G capabilities and increase high-speed internet connectivity in rural communities. The deal also comes with the promise to add 3,000 new jobs in Western Canada, in a clear attempt to appeal to regulators.

Some investors aren’t so sure that these assertions will be enough to mollify the Competition Bureau and the Canadian Radio-television and Telecommunications Commission (CRTC), though.

Mr. Bushell believes last fall’s takeover battle for Cogeco Inc. offers an instructive example of how this sort of deal can play out in markets when completion is far from certain. Rogers teamed up with Altice USA Inc. in an unsolicited bid for Cogeco that initially valued the shares of the Montreal-based cable and telecom company at more than $106 a share.

Yet despite rallying 17 per cent on the day the deal was announced in September, the price of Cogeco shares barely cleared $92 at the end of the trading day. The takeover bid expired in November and Cogeco shares closed at $98.29 on Monday.

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Mr. Bushell expects Shaw’s share price will grind up toward $40 over the next couple of months, but he has no plans to add to his position. Indeed, the risk that the deal could fall apart might push him toward rotating out of his Shaw position if the stock continues to rise, and into another telecom stock, such as BCE Inc. or Telus Corp.

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