Yahoo Finance What you need to know about the state of the Rogers-Shaw merger
The proposed $26-billion merger between telecom giants Rogers Communications Inc. and Shaw Communications Inc. will be one of the biggest corporate combinations in Canadian history if it wins approval. The latest twist in the saga came Jan. 13 when it was revealed a parliamentary committee plans to take second look at the transaction later this month. Those hearings come on top of a Federal Court of Appeal hearing set to take place on Jan. 24. Here’s what you need to know about the state of the deal right now:
The backstory
Rogers first announced on March 15, 2021 its takeover of all of Shaw’s issued and outstanding Class A and B shares, valued at $26 billion including debt owed by Shaw. This meant a blockbuster merger between two of Canada’s largest telecommunications company.
The transaction was given the green light by Shaw shareholders and the Court of King’s Bench of Alberta in May 2021, while the Canadian Radio-television and Telecommunications Commission approved the transfer of Shaw’s broadcasting licences to Rogers in March last year.
Weeks after the CRTC’s conditional approval, the Competition Bureau filed an application to block Rogers’ purchase of Shaw, arguing the merger “would substantially prevent or lessen competition in wireless services.” Shaw is the country’s fourth-largest provider of wireless services, serving some two million customers through its Freedom Mobile and Shaw Mobile brands. Its Freedom Mobile business, which it built after acquiring and rebranding Wind Mobile, has been credited with driving down prices in Ontario, Alberta and British Columbia — provinces where the Competition Bureau said Freedom is Rogers’ “closest competitor.”
Because the Competition Bureau and Rogers and Shaw failed to resolve their issues through mediation, both sides had to argue their cases before a competition tribunal in a four-week proceeding.
The tribunal
The tribunal convened to determine the fate of the telco giants’ merger commenced on Nov. 7, with Chief Justice Paul Crampton presiding over the case. The panel heard from 45 witnesses over four weeks, including executives of Canada’s largest telecommunications companies, such as BCE Inc.’s Bell and Telus Corp., as well as academic and industry experts.
Throughout the proceedings, Rogers and Shaw argued the merits of an updated transaction in which Quebecor Inc. subsidiary Vidéotron would purchase Shaw’s Freedom Mobile for $2.85 billion, a divestiture they said should allay concerns about reduced competition stemming from the merger. The three telcos argued that Vidéotron, a major player in Quebec but with little presence elsewhere, would make for a “stronger” fourth competitor in Canada’s wireless market, in place of Shaw. The hearing came to a close on Dec. 14.
On Dec. 29, the Competition Tribunal announced its decision to dismiss the Commissioner of Competition’s attempt to block the deal. In the decision, the three-member tribunal rejected arguments that combining the two telecom giants would substantially lessen wireless competition, particularly in light of the side deal to sell Freedom to Vidéotron.
The following day, the Commissioner of Competition advised the companies that it would appeal the tribunal decision and apply for an injunction. The Federal Court of Appeal granted an emergency interim stay on the tribunal’s approval of the merger, which means the deal is now blocked from closing until the appeal is heard.
Next steps
The court will hold the appeals hearing on Jan. 24, one of the dates proposed by Rogers and Shaw.
In a memorandum of fact and law filed Jan. 13, the Competition Bureau alleged the Tribunal “made four legal errors” in its decision, and that a different outcome would have been reached if the “legal errors” were not made. The Competition Bureau’s lawyers focused their appeal argument around the divestiture agreement as a proposed remedy to the transaction, which they said was only filed three months after the application to block the merger.
The one-day appeal hearing will be open to the public virtually at 9:30 a.m. There is no time frame as to when a decision on the appeal will be made.
House of Commons committee to hold second public hearing into Rogers-Shaw merger
Competition Bureau appeal of Rogers-Shaw approval to be heard Jan. 24
Vass Bednar: The Rogers-Shaw competition ruling shows the system is broken
On Jan. 25, the House of Commons standing committee on Industry and Technology will hold the recently announced meetings to review the updated deal. Members of Parliament on the committee had recommended against the initial transaction after a review in March last year, saying “the merger should not proceed” in its initial state, before the divestiture of Freedom to Vidéotron had been agreed to.
This time, the parties committee will consider that proposed remedy to sell Freedom Mobile. Quebecor chief executive Pierre Karl Péladeau has confirmed he will attend as a witness, as has Globalive Capital Inc.’s chief executive Anthony Lacavera, who had tried to buy Freedom — which was built on mobile assets he sold in 2015.
While the committee does not have the power to directly block the merger, it can provide recommendations to Innovation, Science and Economic Development Canada (ISED), led by industry minister François-Philippe Champagne — whose approval is all that is left aside from the appeal.
In yet another development, independent internet provider TekSavvy Solutions Inc. also filed an application to the CRTC on Jan. 19, disputing the legality of the wholesale arrangements at the heart of the merger, which it is asking the regulator to investigate. In its filing, TekSavvy said the CRTC should review the agreement between Rogers and Vidéotron and alleged they violate a section of the Telecommunications Act, as the discounted rates Rogers would offer Vidéotron to lease its broadband network aren’t available to independent ISPs.
The stakes
Rogers and Shaw have extended the outside date for the merger’s closing to Jan. 31 from Dec. 31, which automatically extends Quebecor acquisition of Freedom Mobile to the same date. The telecom giants had originally expected to close the transaction in the second quarter of 2022.
Further delays could bring additional costs to Rogers. Maher Yaghi, a telecom analyst at Scotiabank, said in a note that the company will already likely be forced to make an additional bond payment in early January as the transaction did not close before the end of 2022. Lawyers for Rogers stressed during the weeks-long tribunal hearings that if a decision wasn’t reached before Dec. 31, the company would have to pay out an additional $250 million to bondholders.
Last week, Shaw reported weaker-than-expected quarterly earnings, with both its cable and wireless businesses showing slowing momentum. In a note, Yaghi said the results aren’t likely a true reflection of weakness in the underlying business, but rather reflect that management has been focused on merger-related activities as regulatory approval continues to extend in time.
• Email: dpaglinawan@postmedia.com | Twitter: denisepglnwn
