Fourteen months into its bid to stitch up cable networks across the country by acquiring Shaw Communications Inc., Rogers Communications Inc. now faces the prospect of a court battle over the $26-billion deal after the federal Competition Bureau said it wants to block the merger .
For Rogers, the deal has always been primarily about snapping up Calgary-based Shaw’s cable TV and internet business, which includes valuable fiber-optic networks that could help it build 5G cell service.
But while the company now says that it is willing to sell all of Shaw’s wireless business to another party, observers say it waited until well in the regulatory review process to make that commitment.
With the Competition Bureau already seeking court orders to block the entire deal, some industry watchers say the dramatic escalation could have been avoided if Rogers had moved more quickly to put forth an acceptable deal to divest the wireless business.
Shaw’s stock dropped by more than seven per cent to close at $34.87 on Monday, well below the deal’s offer price of $40.50 per share. Rogers shares also closed down more than four per cent at $64.19.
Rogers, Bell and Telus together serve about 87 per cent of Canadian wireless subscribers, but Shaw-owned Freedom Mobile (which operates in Ontario, British Columbia and Alberta and is the fourth-largest carrier) previously put pressure on the big three to offer better prices and services such as unlimited data.
To win approval for the deal, Rogers needed to convince the Competition Bureau that it could line up a buyer for Shaw’s wireless business that would be strong enough to keep competing with the big three. It now appears that it failed to do so.
The bureau said Monday that the proposed merger has already reduced competition in the wireless market, noting that since it was announced, Shaw has invested less in its networks and pulled back on marketing and promotional activity to woo new consumers to Freedom Mobile.
“Eliminating Shaw would remove a strong, independent competitor in Canada’s wireless market — one that has driven down prices, made data more accessible, and offered innovative services to its customers,” Commissioner of Competition Matthew Boswell said in a statement.
“We are taking action to block this merger to preserve competition and choice for an essential service that Canadians expect to be affordable and high quality.”
In a statement released late on Monday, a Rogers spokesperson said the company is currently “engaged in a process to divest Shaw’s Freedom Wireless business in its entirety.”
Rogers added that it “will continue to engage constructively with regulators to reach a resolution,” and that if the merger takes place it plans to accelerate rural network builds, expand network coverage and foster “competition and choice in areas of the country that have only one provider today.”
The telecom also said that it is “prepared to defend the transaction before the Competition Tribunal,” and “we will be filing our formal response in due course.”
Financial analysts said the deal is not yet dead, but to stave off a bruising and potentially drawn-out court battle, Rogers must now scramble to find a buyer for Freedom Mobile that can satisfy the bureau and convince it to drop its opposition to the merger . The telecom has moved the deadline to close the deal from June 13 to July 31.
Rogers reportedly proposed a sale to Xplornet Communications Inc., but the rural internet provider previously failed to create real wireless competition in Manitoba after winning wireless airwaves and subscribers in an arrangement that helped Bell seal a deal to acquire Manitoba Telecom Services Inc. in 2017.
Xplornet is also owned by US private equity firm Stonepeak Infrastructure Partners — rather than an operating telecom company — so there is a chance the owners could seek to sell the business within a few years’ time, leading back to the same problem the bureau is faced with now.
Quebecor Inc.’s owner and CEO Pierre Karl Péladeau has previously said he wants to expand his company’s wireless business outside of Quebec and the Globe and Mail and Bloomberg reported over the weekend that Rogers has recently asked Quebecor to consider bidding on Freedom Mobile.
“The Competition Bureau’s opposition to Rogers’ proposed remedy solutions puts Quebecor in an improved negotiating position,” said BMO Capital Markets analyst Tim Casey.
Quebecor declined to comment on Monday.
Anthony Lacavera, the founder and one-time CEO of Wind Mobile (which was later sold to Shaw and renamed Freedom Mobile), said he was pleased to see the bureau dig in publicly to encourage more competition for consumers.
Lacavera and his investment firm Globalive Capital have previously said they have offered to buy Shaw’s wireless business for $3.75 billion.
He said that offer, which is backed by a syndicate of mostly US investors including Twin Point Capital and Baupost Group, still stands and would offer more competition for consumers than Quebecor.
“I think the government gave Rogers signals that were ignored,” Lacavera said Monday. “You would think that (Rogers) would have heeded warnings from the Competition Bureau, but they obviously didn’t.”
National Bank analyst Adam Shine said that while Bay Street assumed from the beginning that Rogers would have to sell Freedom Mobile, the company “seemed to try to retain all or most of Freedom Mobile until it was finally prepared to fully divest.”
“One can’t help wonder if some of what’s to follow with regulators could have been avoided,” Shine said.
Federal Innovation, Science and Economic Development (ISED) Minister François-Philippe Champagne said in March that his department, which must also approve the transaction, would not approve “the wholesale transfer of Shaw’s wireless licenses to Rogers.”
Alex Wellstead, director of communications for Champagne, said Monday that ISED is continuing to review the application and the government is “committed to promoting competition and ensuring affordability.”
The bureau is seeking an order from the Competition Tribunal to stop the deal from proceeding and also requesting an injunction to stop the parties from closing the deal before its court application can be heard.
Public versions of the bureau’s court filings had not been posted on the Competition Tribunal’s website by early Monday evening.
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