(Bloomberg) -- One of the biggest corporate mergers in Canada’s history is about to face its hardest test, as antitrust lawyers square off in court to decide the fate of a deal between two billionaire cable families.
It’s been a long haul for the Rogers family and Rogers Communications Inc. since they announced a takeover offer for Shaw Communications Inc. in March 2021. Executives from both companies confidently predicted they could steer the C$20 billion ($14.8 billion) transaction through regulators in a little more than a year.
They didn’t account for the doggedness of Matthew Boswell, Canada’s competition commissioner, who in May sued to block the deal, arguing it would make Rogers too powerful in the wireless industry. Several weeks later, the companies announced the sale of most of Shaw’s wireless business to Quebecor Inc.
But Boswell kept going. His office argues that even the divestiture of billions of dollars in Shaw assets isn’t enough to solve the inherent problem with the larger deal: it’s going to weaken the choices for Canadian consumers, potentially driving up costs for data connections just as 5G service is rolled out.
Hearings begin Monday at Canada’s Competition Tribunal, a body overseen by federal court judges that handles cases involving mergers and antitrust disputes. Boswell is seeking nothing less than to stop the deal entirely.
But the law may be on Rogers’s side.
The companies say Boswell’s application to halt the transaction is excessive, given that they’ve already made a major concession to him with the Quebecor side deal.
“What you’re witnessing is a remarkably stubborn refusal by the commissioner to recognize reality,” Kent Thomson, a lawyer for Shaw, said at a pretrial conference on Nov. 1.
Family Ties
Rogers, Canada’s largest wireless company by number of subscribers, pursued the deal as a way to fill in gaps in its network in Western Canada and become a truly national communications company. Post-acquisition, it would have more than C$20 billion in annual revenue, the kind of scale it says it needs to make 5G network investments and compete with BCE Inc., which is Canada’s largest telecommunications firm, and Telus Corp., which has a reputation for superior customer service.
The deal is also the realization of a family dream. Ted Rogers and JR Shaw, the companies’ late founders, were friends who sometimes did deals together, including a huge asset swap in 2000 that allowed Shaw to consolidate cable TV territories in Canada’s west in return for Rogers gaining new markets in the east. Their sons, Rogers Chairman Edward Rogers and Shaw Chief Executive Officer Bradley Shaw, have known each other since they were children. It’s long been thought the companies would eventually get together.
Along the way, the Rogers family publicly tore itself apart in a feud over control of the board and who should be the CEO to guide the company through the Shaw acquisition. Edward Rogers fought his mother and sisters in court, prevailed, then effectively fired much of the board. The board then sacked CEO Joe Natale and hired as his replacement Tony Staffieri -- a man who, just weeks earlier, had been fired as chief financial officer.
The bizarre sequence did nothing to enhance the family’s reputation. Nor did Rogers Communications help its cause for the merger when its networks collapsed one day in July -- knocking consumers offline, disrupting business payments and even forcing the postponement of a concert by The Weeknd.
But those episodes, as embarrassing as they were, may not matter much in the Competition Tribunal case. Rogers and Shaw have some advantages in the law.
The tribunal has a number of options. It could side with Boswell or with the companies, but the most likely outcome is a compromise that forces some changes to the deal -- an “alternate remedy” in legal parlance -- while still allowing it to close, according to Keldon Bester, a fellow at the Center for International Governance Innovation and a former special adviser to the Competition Bureau.
Canada’s competition law is remedy-oriented, according to Jennifer Quaid, a law professor at the University of Ottawa. Merging companies have a powerful legal weapon in the “efficiencies defense,” which allows them to argue that the cost savings involved in a deal are so great that they outweigh the harmful impacts on competition.
“Historically, the efficiencies defense has always succeeded when it was argued,” said Quaid, though it has only been the crucial factor in a very small number of cases.
The current law and the efficiencies defense are holdovers from the 1980s, when bigger companies were seen as better and market concentration was viewed more favorably by policymakers, said Ben Klass, an Ottawa-based researcher in telecommunications policy.
The judges’ decision in this merger may serve as a test of how the law currently applies -- and could bolster Boswell’s call for a rewrite of Canada’s Competition Act to make it tougher. In fact, some believe Boswell has dug in his heels against Rogers not because he thinks he can win, but because he’s trying to make a point.
“Part of this is a gambit to demonstrate the flaws in Canada’s competition law,” Klass said.
“If they can go to the wall to challenge this merger and lose on the efficiencies defense, strategically speaking there may be some salvage benefit to the decision. The conversation will shift away from Rogers and Shaw and toward fixing the antitrust laws in Canada.”
Quaid agrees that the case might provide “serious motivation” for reform of the law. But, she asks, “will the merger be the sacrificed for that? That’s the big question.”
If the companies win their case and the deal passes in some form, there’s still one more hurdle. The federal government has to say yes.
Industry Minister Francois-Philippe Champagne, who’s responsible for telecom policy, appeared to signal support last month by publicly setting out the conditions under which he’d sign off on Quebecor’s purchase of Shaw’s main wireless division, known as Freedom Mobile.
Most analysts believe he wouldn’t have done so unless he was prepared to allow Rogers and Shaw to complete the big deal their investors have been waiting for.
©2022 Bloomberg L.P.
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