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Rogers-Shaw telco megadeal to test Canada’s regulatory teeth

Rogers CEO Joe Natale (left) and Shaw CEO Brad Shaw (right). The Canadian Press/Chris Young, Jeff McIntosh
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Rogers announced a $20.4-billion friendly takeover of Shaw first thing Monday morning, consolidating cable territories in Canada’s east and west and bringing one of the country’s larger wireless challengers under the roof of a Big Three telecom. Here’s what you need to know about the deal:  

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The money: Rogers is paying $20.4 billion in cash to regular Shaw shareholders, with Shaw’s namesake family, which controls the Calgary-based company, swapping roughly 60 per cent of their shares for Rogers stock. Rogers is also assuming $5.8 billion in net debt, and projects it will realize more than $1 billion annually in “synergies” within two years of the deal closing, which it expects in the first quarter of 2022, subject to shareholder and regulatory approval. The combined firm will have a leverage ratio—debt compared to EBITDA—of five times, dropping to 3.5 times within three years, a figure Rogers is betting won’t ding its credit rating. 

The sell to policymakers and regulators: Rogers projects the post-merger firm will spend $3.7 billion annually on capital expenditures—up from $2.3 billion for Rogers and $1.1 billion for Shaw in fiscal 2020. The Big Three telco is promising to spend $2.5 billion to build out the combined carriers’ 5G network in Western Canada, as well as a $1-billion fund to boost connectivity in rural, remote and Indigenous communities. It’s also pledged to keep Shaw’s Calgary head office, styling it a Western hub that will house Rogers’ regional president and some senior executives. And, it says it won’t raise rates for Freedom Mobile customers for three years after the transaction closes. 

The antitrust angle: The Competition Bureau announced it’ll review the deal, and signalled it won’t provide a timeline for the process. Last July, the antitrust regulator told its telecom counterpart that Canada’s wireless sector has “a market power problem,” allowing the Big Three carriers to “charge higher prices and offer lower plan limits when competitive discipline from regional carriers is low.” It called for large telecoms to be required to sell access to their networks to mobile virtual network operators (MVNOs), which typically don’t have their own infrastructure. Bell, Rogers and Telus have threatened to slash investment if the government enforces such a policy.  In February 2017, the Competition Bureau signed off on Bell’s takeover of Manitoba Telecom Services—which it said “would likely result in a substantial lessening or prevention of competition for retail wireless services” in the province—on the condition that it sold some subscribers, spectrum and retain stores to Xplornet and Telus. 

Ottawa’s goals: Former innovation minister Navdeep Bains was tasked with cutting average wireless bills by 25 per cent, with the Liberal government threatening MVNOs if the Big Three didn’t comply. In practice, that means dropping the price of mid-range plans with between 2 GB and 6 GB of data. Folding Freedom—the formerly independent carrier for which Shaw paid US$1.6 billion in March 2016—into the Rogers stable of wireless brands won’t help with the increasing-competition part of Ottawa’s plan. 

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A joint family: The two companies’ controlling clans will both remain involved with the proposed consolidated firm. The Shaw family will receive 23.6 million Class B Rogers shares, giving them about 4.5 per cent of Rogers and two board seats. The deal was brokered by Rogers CEO Joe Natale—who previously ran Western wireless leader Telus—and Shaw CEO Brad Shaw. The latter said he considered taking Shaw private before agreeing to be acquired. The two families have divvied up territories and swapped cable assets in the past. Last year, Rogers failed in a takeover bid for Cogeco, a major cable player in Quebec, after the controlling Audet family rejected its bids.