(Bloomberg) – Rogers Communications Inc. agreed to rival Shaw Communications Inc. for sale in a C $ 20 billion ($ 16 billion) deal that will unite Canada’s two largest cable providers and shake up its wireless industry.
The cash offer of C $ 40.50 per share has the support of Shaw’s board and is not subject to financing, the companies said on Monday. The proposal represents a 69% premium above Shaw’s closing price on Friday.
The deal, if approved by regulators, would merge companies controlled by two of Canada’s most powerful business families, who worked together and also competed in the fight against telecommunications competitors Telus Corp. and BCE Inc.
Rogers and Shaw have carved out and traded competing cable areas – with Shaw focusing on the western provinces of Canada and Rogers dominating Ontario. But Rogers has pulled Shaw far ahead because of its large wireless division, an enterprise in which Shaw’s Freedom Mobile unit is a distant fourth place in Canada. This is one of the reasons why Shaw’s share price has fallen over the past five years.
Shaw Communications rose 41% to C $ 33.65 at 9:31 a.m. in Toronto. Rogers rose 3.3% to C $ 61.55.
The agreement must be approved by the Canadian government, which must accept a reduction in competition in the wireless sector, as some parts of the country will have four wireless providers after three. A competition evaluation can take a year; Rogers and Shaw said they expect the deal to close in the first half of 2022.
“This transaction will create long-term value for shareholders of both companies, and just as importantly, this transaction will ensure that the cable and wireless industry in Canada meets the key capital requirements required for 5G networks and the essential connectivity required by Canadian rural needs,” can support Rogers chief financial officer Tony Staffieri said during a conference with analysts.
Rogers said that the transaction in the first year after closing will contribute earnings and cash flow per share, and that the cost savings within two years will amount to C $ 1 billion annually. Including debt, the transaction is worth approximately C $ 26 billion.
Rogers recently tried to expand through the acquisition, and partnered with Altice USA Inc. a hostile August bid in Cogeco Inc. in Quebec and its subsidiary Cogeco Communications Inc., Cogeco’s controlling Audet family, repeatedly rejected the bid and it collapsed. in November.
Once the deal is finalized, Shaw CEO Brad Shaw and another director named by the Shaw family will join the Rogers board. The Shaw family would also become a major shareholder in the combined company, with 60% of its shares in Shaw Communications for 23.6 million Class B shares of Rogers.
“Our families and our companies have known each other for years and we hold similar values and philosophies,” Brad Shaw said. ‘Rogers and Shaw have been friendly but intense competitors for decades. But all the while we respected each other, admired each other and learned from each other’s actions. ”
In November, Toronto-Dominion Bank analyst Vince Valentini said Shaw would have the most upside potential over the next 18 months if he merged with Rogers.
The combined company would spend C $ 2.5 billion to build a 5G network in western Canada and C $ 3 billion in network, service and technology investments, the companies said in a statement. Rogers’ Western Canadian headquarters would be in Shaw’s current headquarters in Calgary.
But it is an open question whether the government will allow such an agreement without concessions, at least on the wireless side.
“I believe this will be one of the most complex antitrust cases in Canadian history,” said Julian Klymochko, who manages an exchange-traded fund as chief investment officer of Accelerate Financial Technologies in Calgary.
‘It will test the government’s appetite to adopt more consolidation in a highly concentrated industry and in which there has been a lot of pressure on the regulations to lower prices. The result is highly uncertain, “he said.
“We were clear that greater affordability, competition and innovation in the Canadian telecommunications sector is just as important to us as it is to Canadians who are concerned about their mobile phone bills,” said Canadian Industry Minister Francois-Philippe Champagne. postal statement said. “These goals will be the main issue in analyzing the implications of today’s news.”
(Updates with share price movement in fourth paragraph and other small changes)
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