Rogers asks bondholders for help in closing long-delayed deal for Shaw

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It’s taking far longer to close Rogers Communications Inc.’s $26-billion acquisition of rival Shaw Communications Inc. than was even imagined when the telecom giant was lining up final financing for a deal that now faces a serious challenge from competition authorities.

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As the Competition Tribunal process drags on, Rogers is asking holders of US$9.35 billion of bonds to accept additional fees in exchange for extending their outside redemption date to the end of December 2023 from the end of December 2022.

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Rogers and Shaw have already agreed to extend their agreement through to the end of December, with an option to extend again to Jan. 31, 2023, provided committed financing is in place.

Jerome Dubreuil, a telecom analyst at Desjardins Securities, said in a note to clients that the financing news is “slightly negative” and could cost Rogers “material amounts.”

If the proposed amendment is approved by a majority of holders of the special mandatory redemption (SMR) bonds, he estimates it will initially cost Rogers about $520 million, or slightly more than $1 a share, payable in early September.

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An additional $255 million, or 50 cents a share, will have to be paid if the deal doesn’t close by year-end, and that would be paid in January next year.

Despite these added costs, Dubreuil said he continues to believe the combination of Rogers and Shaw would be good for the former’s shareholders.

“Slightly negative does not mean it is a bad decision,” the analyst said of the proposed financing terms.

He noted that if the bondholders accept the offer, it would reduce interest-rate risk to Rogers’ financing of the Shaw deal, and reduce the pressure to close the transaction this year.

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Dubreuil said that despite reduced odds that the deal will close this year, the bondholder solicitation shows that Rogers remains optimistic.

If Rogers “did not expect the SJR (Shaw) transaction to close eventually, it is unlikely the company would have committed an additional $520 million upfront,” he said in his note. “It is unfortunate for RCI (Rogers) that the merger is taking this long to close, which has created extra costs for the company.”

Rogers struck a deal to purchase Calgary-based Shaw in March 2021, but the Competition Bureau announced in May this year that it would seek a full block of the transaction. It cited concerns wireless competition would be reduced, leading to higher prices for consumers.

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In June, Rogers and Shaw announced a deal to sell Shaw’s wireless division, Freedom Mobile, to a subsidiary of Montreal-based Quebecor Inc. for $2.85 billion. 

Both the combination of Rogers and Shaw and the Freedom Mobile sale to Quebecor are subject to approval from Innovation, Science and Economic Development Canada.

The ongoing delays in closing the transaction are “disproportionately favourable” to telecom rivals Telus Corp. and BCE Inc.’s Bell, BMO Capital Markets analyst Tim Casey said, pointing out in a note to clients that the share prices of other telecoms have outperformed as they focus on upgrading their 5G wireless and fixed-line networks to better compete with Rogers. 

Still, Casey has said Quebecor is the “obvious remedy partner” to get the deal done through the purchase of Freedom Mobile.

“The process overseen by the Competition Bureau ultimately produced a remedy solution that satisfies government priorities and with more attractive consumer concessions,” he said in an Aug. 22 note. “In our view, the Competition Bureau can rightly claim credit for a job well done.”

With files from Bloomberg

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