Rogers RCI-BT is seeking to salvage its $26 billion acquisition of Shaw by lining up a suitable buyer for wireless charging company SJR-BT Freedom Mobile after Canada’s competition watchdog pledged steps to prevent the merger of the country’s two largest cable networks.
The Competition Bureau notified Rogers Communications Inc. On Friday, it said it plans to oppose the Toronto telecom giant’s acquisition of Shaw Communications Inc. based in Calgary, prompting the two companies to push the deadline for closing the deal from June 13 to July 31.
The companies said in a statement early Saturday morning that they remain committed to the deal and plan to oppose the application by Matthew Boswell, the competition commissioner.
According to analysts, the bureau will present its reasons for blocking the deal as early as Monday. They said the regulator’s main issue was ensuring that Rogers sold the Shaw’s Freedom Mobile division to a new owner who would be committed in the long term to ensuring competition in the mobile market. Freedom is the fourth largest wireless carrier in the country with nearly two million customers in Ontario, Alberta and BC
Rogers, Shaw says competition bureau commissioner plans to oppose $26 billion merger
Rogers failed to listen to Ottawa, and now Shaw’s deal is in jeopardy
The priority for Rogers and Shaw is to find a Freedom buyer who satisfies the Office of Competition, Management, Science and Economic Development (ISED), rather than engaging in hearings that could take months to complete, according to people familiar with the process. The Globe and Mail have not identified the sources because they are not authorized to speak publicly about the matter.
Shaw’s stock price is expected to fall when trading begins Monday, according to analysts at investment bank Cowen Inc. Investors are reacting to Friday’s news that closing the deal has been delayed and there is an increased possibility of the deal falling apart. “We believe that any deal that damages Rogers’ wireless franchise could cause them to reconsider the deal,” CIBC analysts said in a report.
On Friday, Shaw’s stock closed at $37.56 on the Toronto Stock Exchange, at a 7 percent discount to Rogers’ takeover offer of $40.50 per share. If the acquisition fails, Rogers owes Shaw a break-in fee of $1.2 billion.
Rogers has been trying to sell Freedom for several months and has offered regulators potential buyers including Stonepeak Infrastructure Partners, a New York-based private equity fund that owns rural internet provider Xplornet Communications Inc.
The Globe and Mail reported on Friday that Rogers also began negotiations over Freedom last week with Montreal-based Quebecour. Quebecour is a significant player in the Quebec mobile market, and CEO Pierre-Carl Pillado has publicly discussed interest in acquiring Freedom as part of a national expansion.
Over the weekend, analysts outlined scenarios for Rogers to overcome regulatory problems. Quinn said in a report that the carrier needs to get approval from the Competition Bureau and ISED.
“We see two ways to deal with completion: (1) Rogers goes between his legs to Kibekor and works to strip freedom; (2) ISED agrees to withdraw ownership to Stonepeak and Rogers closes the Shaw deal while battling the competition bureau in court,” Quinn said.
The Toronto-based telecoms negotiations with Quebecour come after Montreal-based Videotron’s subsidiary Videotron Ltd. sued Rogers for $850 million last October, alleging breach of contract over the companies’ shared wireless network in Quebec and Ottawa.
“Given the history between the two companies, we don’t think Rogers would have communicated had he not been mandated by the bureau,” said CIBC analysts. “In the scenario Rogers is asked to sell to Kibekor, we expect Kibekor to be able to negotiate an attractive transaction for the assets, which we estimate to be worth $3.74 billion.”
Mr Péladeau feels he has the upper hand in the discussions because he has other options to realize his ambitions to turn Quebecor into a national wireless carrier, according to a source familiar with the discussions. The Globe has not identified the source because the person is not authorized to speak publicly about the matter.
For example, Videotron, which spent $830 million on major 5G wireless waves in a recent federal auction, could expand beyond the home province of Quebec by renting wireless access as a mobile virtual network operator, or MVNO, under the new system put in place by the FDA. Canadian Communications Regulation.
The source said that senior Quebec executives are concerned about being used as a stalking horse to raise the value of Freedom, and feel that some of the terms of the confidentiality agreement that Rogers asked them to sign are unacceptable.
Globalive Capital Chairman and Freedom Mobile founder Anthony Lacavera, who offered $3.75 billion to buy back the wireless carrier, raised similar concerns about the confidentiality agreement, which he outlined in a letter to Ottawa in March. According to Mr Lacavera’s letter, the agreement contains “external restrictions” around financing and communication with regulators surrounding the deal.
Freedom Mobile’s growth stalled in the last quarter. Shaw added 8,632 new postpaid wireless subscribers during the quarter — well below 75,069 during the same quarter last year. (Postpaid subscribers are those who are billed at the end of the month for services they used, versus prepaid customers, who pay up front for wireless services.)
A spokesperson for the Competition Bureau said the agency has not yet submitted its application and will release more information on our investigation in due course.
“Since we are required by law to conduct our work in private, we are not in a position to comment further,” Amy Boucher said in an email.
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