Columnist image
Noah Zivitz

Managing Editor, BNN Bloomberg


Rogers Communications Inc.'s plan to sell Freedom Mobile to Quebecor Inc. has given Bay Street more reason to believe the $20-billion takeover of Shaw Communications Inc. will clear the two major remaining regulatory hurdles.

Rogers has been trying for more than year to secure all necessary approvals to close its takeover of Shaw, which would mark a major expansion in Western Canada for the Toronto-based telecommunications giant. It agreed to buy Shaw in March 2021 for $40.50 per share.

However, Competition Commissioner Matthew Boswell has dug in his heels in objecting to the takeover of Shaw. His opposition is heading to a quasi-judicial hearing before the Competition Tribunal later this year if Rogers can’t assuage the competition watchdog's concerns sooner.

Rogers President and Chief Executive Officer Tony Staffieri struck an optimistic tone late Friday when the proposed sale of Shaw's Freedom wireless business to Quebecor was announced. "Our agreement with Quebecor to divest Freedom is a critical step towards completing our proposed merger with Shaw. ... This agreement between proven cable and wireless companies will ensure the continuation of a highly competitive market with robust future investments in Canada's world class networks," he said.

But Boswell has repeatedly indicated Rogers' long-stated plan to sell Freedom wouldn't be enough to mollify him. "The proposed divestiture of Freedom Mobile is not an effective remedy," he stated in a submission to the Competition Tribunal last Thursday.

Nevertheless, several analysts said in reports to clients Monday they see a greater likelihood that Rogers' takeover of Shaw will be allowed to proceed now that Quebecor has been lined up as a buyer for Freedom Mobile, which could help position the Montreal-based company as a viable fourth national wireless carrier.

Here are highlights from some of the analyst commentary:

"We believe this agreement increases the prospect of the (Rogers-Shaw) transaction closing to over 95 per cent," wrote Aravinda Galappatthige, an analyst at Canaccord Genuity, in a report. He upgraded Shaw's Class B shares to buy from hold, and raised his price target to $40.50 from $35.00.

Galappatthige also upgraded Rogers to buy from hold, saying the Freedom sale "likely gets them to the finish line as far as securing Shaw Cable is concerned.” However, he trimmed his price target on Rogers' Class B shares to $69.00 from $71.00 as a result of what he called "tougher macro and lower market valuations."

As for Quebecor, Galappatthige maintained his buy recommendation and $30.00-per-share price target. He described the Freedom deal as a "mixed bag" for Quebecor given the opportunity and risks associated with expanding beyond the company’s home province.

Jerome Dubreuil, who covers the telecom sector for Desjardins Capital Markets, agreed that there's a greater chance that Rogers will now be able to close its deal with Shaw.

"We believe [Quebecor's] strong operational track record, balance sheet, expertise and asset mix will make it more difficult for the regulator to argue that the Canadian wireless competitive landscape will be materially affected by the [Rogers/Shaw] merger," he wrote in a report to clients Monday.

Adam Shine from National Bank of Canada Financial Markets countered Boswell's opposition to the Rogers-Shaw deal, stating he thinks the commissioner is "incorrectly [assuming] that the buyer of Freedom can't at least match Shaw's wireless efforts and competitiveness."

"Anyone looking at Quebecor’s strategy in Quebec and its achievement of a provincial wireless market share of 22.5 per cent would be hard-pressed not to acknowledge its success and be compelled to reassess the statements above. To do otherwise would be to simply deny the reality of results over the past few years," he added.

Shine said he thinks a negotiated settlement between Rogers, Shaw, and the Competition Bureau "would be the appropriate and most expeditious route" to closing the transaction. Rogers also requires approval from Innovation, Science and Industry Minister François-Philippe Champagne.

Shine has outperform recommendations (the equivalent of a buy) on each of Rogers, Shaw, and Quebecor.