The stock price of Shaw Communications Inc. SJR-B-T slumped more than 7 per cent on Monday, reflecting dimming hopes that Rogers Communications Inc. RCI-B-T will be able to complete its takeover of the Calgary-based telecommunications firm.
The sharp decline comes after the Competition Bureau notified Rogers on Friday that it plans to oppose the $26-billion deal.
While that doesn’t mean the agreement is dead, Rogers and Shaw have extended the deadline for completing it from June 13 to July 31.
That raises uncertainty for sophisticated investors, and others, who believe that the deal will go through and at the agreed price.
Monday’s selloff, which arrives at a rocky time for the broader stock market, sent Shaw’s share price down to a low of $33.70 at the start of trading.
That’s $6.80 below the $40.50 takeover price, or a discount of nearly 17 per cent. Shaw closed a $34.87, down 7.2 per cent, which is the lowest price since October.
In early April, soon after the Canadian Radio-television and Telecommunications Commission (CRTC) ruled in favour of the deal, Shaw’s share price traded as high as $39.44, or a discount of less than 3 per cent from the takeover price agreed to 14 months ago.
Rogers shares fell 4.14 per cent on Monday.
Still, analysts remain upbeat that Rogers and Shaw remain committed to completing the deal, even if it is delayed.
“Despite this apparent twist in this process, we continue to believe the probability of a deal ultimately getting approval remains high,” Drew McReynolds, an analyst at RBC Dominion Securities, said in a note.
For one thing, Mr. McReynolds said, Rogers is highly motivated to acquire as much as it can of Shaw’s telecommunications infrastructure in Western Canada to build its national footprint and compete against BCE Inc. and Telus Corp.
For another, he expects Rogers can address the Competition Bureau’s concerns.
“Despite little change to our working assumptions since the deal was announced, where we are now clearly wrong is [the] timing,” Mr. McReynolds said.
He expects that the new deadline for completing the deal in July is more of a placeholder than a firm date.
The unexpected delay raises some uncertainties within the wider Canadian telecom sector, with potential winners and losers.
According to Tim Casey, an analyst at BMO Nesbitt Burns, Shaw is in the losing group: With no plan B, the company faces insufficient returns on its wireless operations and did not participate in a recent spectrum auction.
As well, Rogers is now in a weaker negotiating position as it attempts to address the Competition Bureau’s concerns by selling assets. Alternatively, it could face a lengthy dispute.
But BCE and Telus may emerge in better competitive shape. BCE’s share price rose 0.7 per cent on Monday.
“Any review-process delays and friction within the Rogers/Shaw deal, is a net win for these two national wireless operators. Both entities reported encouraging first-quarter results last week reflecting strong wireless fundamentals,” Mr. Casey said in a note.
As for Shaw’s lower share price, and whether the stock looks like a particularly attractive opportunity given the widening spread between the current share price and the takeover price, the answer is muddled: Yes, the potential returns are now bigger, but so is the risk.
A delay in completing the deal means that investors must weigh the opportunity over a longer period of time, during which other investments could arise. And, of course, there’s the risk of the deal falling apart, which analysts expect would be a heavy blow to Shaw’s share price.
Bank of Nova Scotia analysts estimate that Shaw’s fundamental value is just $25 a share, before factoring in a break fee from Rogers – suggesting that the downside risk is another 26 per cent decline.
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David Berman