The two companies said in a release that Rogers will acquire all of Shaw’s outstanding Class A and B shares at a price of $40.50 per share, a 69% premium to Friday's close. Rogers will also assume $6 billion in Shaw debt.
Rogers says the combined company will add 3,000 jobs and invest $2.5 billion in 5G networks over the next five years across Western Canada to “enhance competitiveness, offer consumers and businesses more choice and improved services, help close the digital divide between urban and rural communities, and deliver significant long-term benefits for businesses and consumers.”
The purchase has been unanimously approved by both Rogers' and Shaw's boards of directors, and has the support of the Shaw Family, which founded the company in 1966. Shaw CEO Brad Shaw will have a seat on the Rogers board, and the Shaw family will have the right to nominate one other board position.
The transaction requires approval from Innovation, Science and Economic Development, the CRTC, and the Competition Bureau.
“We’re at a critical inflection point where generational investments are needed to make Canada-wide 5G a reality. 5G is about nation-building; it’s vital to boosting productivity and will help close the connectivity gap faster in rural, remote, and Indigenous communities,” said Rogers’ CEO Joe Natale in the release.
Scotiabank’s Jeff Fan said in a note that the deal “makes a lot of sense for both Rogers and Shaw.”
“With the synergies and the deal over 90 per cent financed with cash, the acquisition should be very accretive for [Rogers],” Fan wrote, adding that the deal will allow the combined company to be a stronger 5G competitor.
Fan added that the move is positive for wireless incumbents, if the deal is approved by regulators.
“We think wireless consolidation is good news for the wireless incumbents. We believe the transaction, as it is structured without any wireless concessions, is a positive for the wireless industry as it consolidates the number of wireless operators in Ontario, B.C., and Alberta from four to three,” he said.
Rogers says the combined company will offer affordable internet and wireless services with no overage fees, and “will not increase wireless prices for Freedom Mobile” customers for at least three years following the close of the transaction.
Innovation Minister François-Philippe Champagne said in an email statement that the department will stay committed to creating more competition and greater wireless affordability for Canadians.
"These goals will be front and centre in analyzing the implications of today's news," he said. "The transaction will be reviewed by the independent Competition Bureau of Canada, the Canadian Radio-television and Telecommunications Commission, as well as the department of Innovation, Science and Economic Development and we won't presuppose the outcomes of these processes."
The deal was announced as the CRTC is examining regulations on Mobile Virtual Network Operators (MVNO). In late February 2020, the CRTC held regulatory hearings on whether to mandate MVNO (wholesale service providers) access to large wireless networks.
“We are surprised about the timing of the deal, primarily due to the upcoming spectrum auction and the CRTC MVNO decision,” Fan wrote. “The CRTC still have not issued its MVNO decision and is it possible that the CRTC re-evaluates its position, given this potentially significant change to the industry structure?”
Rogers also said that it will create a $1 billion Rogers Rural and Indigenous Connectivity Fund dedicated to connecting rural, remote, and Indigenous communities in Western Canada.
The Competition Bureau confirmed in a release it will review the merger.
“Should the bureau determine that the proposed transaction is likely to substantially lessen or prevent competition, we will not hesitate to take appropriate action,” the release said.
Joe Natale during a conference call to investors said he couldn’t speculate on regulatory outcomes but that “but we feel confident this transaction will be approved.”
Merger isn't going to be good for the country: Winseck
Dwayne Winseck, a media industry researcher at Carleton University, says the merger is "not a good thing" for the country, which already suffers from a lack of competition in the telecom industry.
Right now, Shaw and Rogers do not compete with each other on cable and internet services; Shaw’s market is everywhere west of Manitoba and Rogers is east, Winseck said in an interview.
He said the two compete with each other on wireless in B.C., Alberta, and Ontario, and for paid and specialty TV, broadcast TV, and radio nationally.
Winseck said the cable market will now go from a moderately concentrated market to a highly concentrated market, and the mobile wireless market will go from an already highly concentrated market to one that is even more concentrated.
The merger would essentially eliminate the fourth player that tried to create some competition, Winseck says. He noted that during the 2008 AWS spectrum auction the federal government, for the first time, set aside spectrum for new players in an effort to create more competition in the country.
“It eliminates a player in the market. This is what’s called horizontal integration and is where concentration concerns are supposed to be the greatest and the competition authorities supposed to be most alert,” he said.
Rogers most recently, in partnership with Altice USA, tried to acquire Cogeco Inc and Cogeco Communications, but the bid expired. Winseck said Rogers’ move to buy Shaw is conventional growth by acquisition versus innovation and that in the long run, it makes Rogers look good at the expense of the market.
“It’s a conservative approach that dominant players use to blunt the effect of market forces and to blunt a need to plow their own internal resources into a competitive market solution."