Quebecor seen as clear winner in Freedom Mobile deal as Rogers faces pressure

Article content

Quebecor Inc. is being viewed as a clear winner in an 11th-hour agreement by Rogers Communications Inc and merger partner Shaw Communications Inc. to sell Shaw’s Freedom Mobile wireless assets to the Montreal-based telecom in hopes of overturning Canada’s competition watchdog’s objections to their $26-billion combination.

Article content

“While it appears the market was generally not in favour of QBR (Quebecor) buying Freedom, we believe there was a price at which the acquisition made sense — $2.85 billion is below that level, in our view,” Desjardins analyst Jerome Dubreuil said in a note to clients Sunday night. 

The analyst had estimated a valuation as high as $4.1 billion on the Freedom assets before the sale to Quebecor was announced late Friday, but he noted that Rogers was facing pressure because a previous divestment “remedy” had been rejected and a hearing before the Competition Tribunal could keep the merger of Rogers and Shaw in limbo into 2023.

“Time constraints likely put QBR (Quebecor) in a good spot,” the analyst wrote. “We believe putting forward a very credible bidder (in terms of its potential impact on competition in wireless) was RCI’s (Rogers) best shot at trying to reach a negotiated agreement with the Competition Bureau, which accelerated the process.” 

Article content

Quebecor may prove to be a fierce wireless competitor in Freedom’s territory of British Columbia, Alberta, and Ontario, as it has been in its home market of Quebec, but Rogers faced more dire possibilities if it didn’t make a deal quickly, Dubreuil said.

“Freedom is being sold to a competitor which has shown strong operational capabilities in wireless over the last decade,” he wrote. “However, we believe the impact of these considerations is dwarfed by the increased odds that the (Rogers-Shaw) deal will close.”

The blockbuster merger agreement between the Toronto and Calgary-based telecom giants was forged last year, but it was delayed until the end of July once the Competition Bureau moved to block their marriage after concluding it would reduce wireless competition and raise prices for consumers.

Article content

The new plan to sell Freedom’s assets to Quebecor also requires approval from the Competition Bureau, as well as Innovation, Science and Economic Development Canada, the federal government body that has yet to formally weigh in on the Rogers-Shaw combination.

Over the weekend, the plan for Freedom Mobile came under fire from Globalive founder Anthony Lacavera, who called the sale process “anti-competitive,” and said his company bid $900 million more than the price Quebecor, Rogers and Shaw have agreed on for the Freedom assets.

Article content

He questioned whether the federal government, which has made clear a desire to stimulate wireless competition and bring down prices nationally, would accept a proposal that he argues “maintains the oligopoly status quo” rather than ensuring a “true independent and well-capitalized competitor.” Globalive previously owned Freedom mobile’s wireless assets, which were run under the WIND banner until Shaw bought them in 2015 and rebranded.

Article content

Quebecor chief executive Pierre Karl Péladeau has been vocal about his desire to replicate the competition his company has brought to Quebec in other parts of Canada. To that end, Quebecor spent $830 million in the wireless spectrum auction last year, and challenged Telus Communications Inc. in court over the company’s eligibility to do so.

Dubreuil, the Desjardins analyst, said if Quebecor wins approval to buy Freedom, it would be well positioned to benefit from new regulatory policy that requires national wireless incumbents to negotiate network-sharing arrangements with regional players while they build their own. 

The analyst said he believes Quebecor will target a less capital-intensive mid-range wireless service, noting that Canadian wireless networks rank very high globally in terms of quality.

Article content

“Not everyone needs a Porsche,” Dubreuil wrote.

He said that while he expects Quebecor to run Freedom for some time, a purchase of spectrum at what appears to be a price below the $3 to 3.40 MHz per population that incumbents paid in the last auction will give the company some “downside protection” on its investment. 

“In our view, while QBR did not need the Freedom acquisition,” the analyst wrote, “we believe it was at a crossroads between growing fast (which it chose) or ramping up shareholder distributions, which would have been a perfectly acceptable choice from our standpoint if the price for Freedom had been higher.”

• Email: [email protected] | Twitter: BatPost