(Bloomberg) — Rogers Communications Inc. agreed to buy rival Shaw Communications Inc. in a C$20 billion ($16 billion) deal that would unite Canada’s two largest cable providers and shake up its wireless industry.
The C$40.50-per-share cash offer has the support of Shaw’s board and isn’t conditional on financing, the companies said Monday. The proposal represents a 69% premium over Shaw’s closing price on Friday.
The transaction, if approved by regulators, would merge companies controlled by two of Canada’s most powerful business families, who have cooperated as well as competed in the battle against telecommunications rivals Telus Corp. and BCE Inc.
Rogers and Shaw have carved up, and sometimes traded, rival cable territories — with Shaw focused on Canada’s western provinces and Rogers dominating Ontario. But Rogers has pulled far ahead of Shaw because of its large wireless division, a business in which Shaw’s Freedom Mobile unit is a distant fourth place in Canada. That’s one reason Shaw’s share price has fallen over the past five years.
Shaw Communications jumped 41% to C$33.65 at 9:31 a.m. in Toronto. Rogers rose 3.3% to C$61.55.
The deal needs approval from the Canadian government, which would have to accept a reduction of competition in the wireless sector, as some parts of the country would go from having four wireless providers to three. A competition review could take a year; Rogers and Shaw said they expect the transaction to close in the first half of 2022.
“This transaction will create long-term value for both companies’ shareholders, and just as important, this transaction will ensure Canada’s cable and wireless industry can support the significant capital requirements needed for 5G networks and the essential connectivity that rural Canadians desperately need,” Rogers Chief Financial Officer Tony Staffieri said on a conference call with analysts.
Rogers said that the deal would add to earnings and cash flow per share in the first year after closing and that cost savings would top C$1 billion annually within two years. Including debt, the transaction is worth about C$26 billion.
Rogers has been trying to expand by acquisition recently, teaming up with Altice USA Inc. to launch a hostile bid last August for Quebec-based Cogeco Inc. and its subsidiary Cogeco Communications Inc. Cogeco’s controlling Audet family repeatedly rebuffed the bid, and it collapsed in November.
If the deal is completed, Shaw Chief Executive Officer Brad Shaw and another director nominated by the Shaw family would join the Rogers board. The Shaw family would also become a major shareholder in the combined company, with 60% of its shares in Shaw Communications being exchanged for 23.6 million Class B shares of Rogers.
“Our families and our companies have known each other for many years and we hold similar values and philosophies,” Brad Shaw said. “For decades, Rogers and Shaw have been friendly but intense competitors. But all the while we have respected each other, admired each other and learned from each other’s actions.”
In November, Toronto-Dominion Bank analyst Vince Valentini said Shaw might have the most upside potential over the ensuing 18 months if it were to merge with Rogers.
The combined company would spend C$2.5 billion to build a 5G network in western Canada and C$3 billion on investments in network, service and technology, the companies said in a statement. Rogers’ western Canadian headquarters would be at Shaw’s current head office in Calgary.
But it’s an open question whether the government would allow such a deal without concessions, at least on the wireless side.
“I believe this will be one of the most complex antitrust cases in Canadian history,” Julian Klymochko, who manages an arbitrage exchange-traded-fund as chief investment officer at Calgary-based Accelerate Financial Technologies.
“It will test the government’s appetite to accept more consolidation in a highly concentrated industry and one in which there has been much regulatory pressure to reduce prices. The outcome is highly uncertain,” he said.
“We have been clear that greater affordability, competition and innovation in the Canadian telecommunications sector are as important to us as a government as they are to Canadians concerned about their cellphone bills,” Canadian Industry Minister Francois-Philippe Champagne said in an emailed statement. “These goals will be front and center in analyzing the implications of today’s news.”
(Updates with share price move in fourth paragraph and other small changes)
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