It was to be one of the biggest deals in Canadian history and, for a while, executives at Rogers seemed to think they had it in the bag.
Just over three weeks ago, newish CEO Tony Staffieri was boldly telling Bay Street financial analysts that “we continue to be confident we’ll close this in the second quarter (by the end of June).”
But soon after, the Competition Bureau seemed to shock Rogers when it revealed it planned to take the telecom giant to court over its $26-billion bid to acquire Shaw, leaving the company desperate to find a buyer for Freedom Mobile and save the transaction.
How did it happen?
A close look at the thousands of documents filed with the Competition Tribunal by the bureau on Monday seems to indicate that the impasse stems from a mixture of arrogance on Rogers’ part and its failure to accept just how serious the watchdog was about maintaining a viable fourth carrier.
Had Rogers moved quickly and seriously to find a buyer for Shaw’s wireless assets — someone that was a real contender to take over Freedom’s position as a disrupter in the wireless market — the lawsuit might have been avoided.
Instead, it now looks like Quebecor, a rival Rogers is fighting in court over a network-sharing agreement turned sour, could be poised to benefit from a fire sale of the wireless assets as it plots its own expansion outside Quebec.
This was almost certainly no one’s expectation of how the long-predicted marriage of the two family-controlled cable giants would play out.
“Historically, litigated merger cases in Canada are super, super rare,” said Subrata Bhattacharjee, a partner and co-chair of the competition group at Borden Ladner Gervais LLP.
Correspondence disclosed in court filings this week suggests that both Rogers and Shaw tested the patience of Competition Bureau staff by missing deadlines and providing incomplete answers to questions from the bureau.
In one lengthy letter in early March, a lawyer for the competition watchdog suggested the companies “failed to comply” with a disclosure agreement, setting out numerous examples in a five-page appendix. Counsel for Rogers disputed those claims, however, and both sides forged on with the review process.
That couldn’t have helped matters. But more importantly, when Rogers put forth proposals in late March and early April to sell off some of Shaw’s wireless business, those plans appeared to badly misjudge the bureau’s concerns about competition in the cellular market.
In a February letter, the bureau outlined the remedy it required to address those concerns, said Michael Osborne, a partner in the litigation and competition and foreign investment groups at Cassels Brock & Blackwell LLP.
He said the court filings show that the bureau had two basic problems with the proposed divestitures, one of which was rural internet provider Xplornet, according to the Globe and Mail.
“What I’m seeing here is that the bureau wants someone who’s got enough cash and knows how to run a cell service and, for whatever reason, they don’t think Xplornet is that person,” Osborne said. “And second, they want the purchaser to be able to offer bundles.”
And so, during an April 27 meeting, the company’s hopes of a quick closing were dashed when the Competition Bureau told Rogers and Shaw the proposals were not good enough and said its staff were recommending the bureau go to court to block the deal.
From then on, it was a scramble as Rogers hastily agreed on his board to extend the deadline for closing the deal to the end of July.
After further conversations with the bureau failed to shift its position, Rogers and Shaw put out a news release just after midnight on a Friday night, pleading to fight the bureau’s soon-to-be-filed court applications and announcing the new closing deadline.
Rogers has since said it will keep “engaging constructively with regulators” and that it is “engaged in a process to divest Shaw’s Freedom Wireless business in its entirety.”
Now the company is working against the clock to find a buyer for Freedom Mobile and negotiate a settlement with the bureau, while at the same time preparing for a pivotal legal fight over competition law rules.
“On both sides, this is the kind of case where money is probably no object. They’re going to spend what it takes on lawyers,” Osborne said. “Rogers describes this as a transformational deal for them so, of course, they’re going to do what it takes.”
The first matter the Competition Tribunal will deal with is the bureau’s request for a temporary injunction to stop the parties from closing the transaction.
“It’s very hard to handicap or guess what’s going to happen on that, but that will be the first test of the commissioner (of competition’s) case,” Osborne said, noting that when it comes to such cases the bureau has “lost more than they’ve won.”
No date for that hearing has been set yet, but with thousands of pages of material, a decision will likely take three or four weeks, meaning Rogers and Shaw will be anxious to set a date soon.
Still, that could all be avoided if the companies come up with a solution that convinces the bureau that wireless competition will not be substantially lessened by the transaction.
“The elephant in the room is Quebecor,” Osborne said. “It’s the one that everyone sees as being the obvious purchaser.”
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