Skip to main content
//empty //empty

Headquarters of Shaw Communications in Calgar

Jeff McIntosh/THE CANADIAN PRESS

A merger two big Canadian cable companies, Rogers Communications Inc. and Shaw Communications Inc., is "inevitable" and such a deal is likely to take place in about two to three years, predicts a new analyst report.

Jeff Fan, who covers the telecom and cable industry for Scotia Capital Inc., says a series of friendly asset deals announced by the two companies this month signals their relationship is on the mend – a development that could help pave the way for a combination.

"While we think the timing is about two to three years away, we think the likelihood of this transaction has increased," wrote Mr. Fan in research note to clients, in which he also raised his price target on Shaw's shares by a buck to $26.

Story continues below advertisement

In doing so, he posits that Shaw has made several moves that bode well for a potential merger down the road, including the series of deals it announced with Rogers this month that have a combined value of about $700-million.

As part those transactions, Shaw is selling Rogers an option to eventually buy its unused wireless licences. Rogers is also acquiring Shaw's Hamilton-based cable operations, Mountain Cablevision Ltd. For its part, Shaw is purchasing Rogers's minority interest in television channel TVtropolis.

Although, the companies' founders had previously struck a gentlemen's agreement to not compete in each other's respective home turf (Shaw taking the West and Rogers the East), Shaw's acquisition of Mountain Cablevision is said to have strained relations between the two companies. As a result, analysts such as Mr. Fan have interpreted the recent deals as a sign the companies have patched up their differences.

CEO Brad Shaw has already said that Shaw plans to use the money from the asset sales to make further strides on its strategic plan, which includes accelerating its WiFi rollout, upgrading its cable network and to construct a new data centre in Calgary.

"Before this merger transaction, we expect SJR (Shaw) will invest approximately $450M of the RCI (Rogers) proceeds towards capital investment that will secure its market position and pricing power and enhance its value over the long-term," wrote Mr. Fan.

Such pro-active capital investments, he said, put Shaw in good stead for a future merger because it is unlikely that Rogers would want to earmark money for major upgrades following the completion of a deal.

"By making the investments SJR's (Shaw's) objective is to improve its network and service and make the asset 'bullet-proof' over the long term which we believe should enhance SJR's value," added Mr. Fan.

Story continues below advertisement

Shaw, meanwhile, has also made other moves that suggest the company is methodically readying itself for an eventual sale to Rogers. In December, it capped future payouts under its gold-plated executive pension plan (known as a supplemental employee retirement pension plan or SERP) and closed it to new hires in a bid to control costs.

The Shaw family, meanwhile, continues to buy shares including a purchase earlier this month. Additionally, the family patriarch has made another key move that could signal his intentions, according to Mr. Fan.

"In December 2012, JR Shaw transferred shares from his holding company where he has an indirect interest to his children's holding companies where JR Shaw does not have an indirect interest. There was only one exception in which JR Shaw retained indirect interest," wrote Mr. Fan.

"Although these transfers have taken place in the past this was the first instance that we are aware of that he has transferred to companies that he has no indirect interest. To us this appears to reflect estate planning."

When asked recent about the perennial speculation that Rogers would eventually make a bid for Shaw, Mr. Shaw said his family remains "very bullish" on the company. Even so, he was careful to not rule out the long-term possibility by saying: "You never close the door.

"We'll continue to buy shares if there is an opportune time," he said in an interview with the Globe, following the announcement of the asset sales with Rogers on Jan. 14.

Story continues below advertisement

"You know, we don't feel we're at a competitive disadvantage. We actually feel we can compete with anybody."

In that regard, he said the family believes that having a vertically-integrated company is really its "strength" going forward as it innovates and offers new products and services.

"But that being said, you know, we've always said 'Listen, if we ever felt Shaw shareholders, stakeholders were at a real disadvantage – or something we couldn't do, boy, we felt that ... strategically … All options are open."

Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies