Rogers Communications Inc. is still waiting to see if it can win regulatory approval for a takeover of a smaller Canadian cable company, 17 months after it was first announced. The situation has handed a huge advantage to its two biggest rivals, according to an industry analyst. 

Canada’s largest wireless and cable firm agreed in March 2021 to a $20 billion (US$15.4 billion) deal to buy Shaw Communications Inc. The country’s antitrust regulator is trying to block the transaction, forcing the companies to extend the deadline. It’s possible it won’t close until early 2023, if it closes at all -- causing Rogers to ask holders of M&A bonds on Monday if they’ll agree to relax the terms. 

The delay is “disproportionately favorable” to rivals BCE Inc. and Telus Corp., BMO Capital Markets analyst Tim Casey said. It has given them time to improve their 5G wireless and fixed-line networks to compete with Rogers, and their shares have outperformed since the Shaw acquisition was announced, Casey said in a report to investors.  

BCE and Telus “are focused on their core business and are not distracted by the regulatory challenges incurred to date by the cable companies,” Casey wrote. “Investors understand this.”

The question is whether Rogers and Shaw can get their deal across the finish line. Casey argued that they should be able to win approval, despite all the delays and drama. Shaw shares have been moving higher, closing Monday at $35.10 -- though still far short of the $40.50-per-share takeover bid. 

To defuse the antitrust complaint, Rogers and Shaw agreed to sell most of Shaw’s wireless business to Montreal-based Quebecor Inc. for $2.85 billion. The arrangement is “as good as it gets” for regulators and a federal government that wants to maintain a policy of having a fourth wireless competitor to challenge Rogers, BCE and Telus, according to Casey. 

“In our view, Quebecor represents the best solution available to satisfy the government’s industrial policy. It meets ownership requirements, has an operational track record in the business and enough balance sheet capacity to fund the purchase,” the analyst wrote.

'VICTORY LAP'

By combining its wireless business with Shaw’s, Quebecor would have more than 3 million wireless subscribers across Canada’s four most populous provinces. It would also be getting the assets at a reasonable price, Casey said. 

“Quebecor is positioned to be a more competitive and more sustainable fourth wireless player than Shaw proved to be. To us, this is completely aligned with the government’s long-standing wireless policy,” he wrote. 

Canada’s Competition Bureau can take credit for keeping Shaw’s wireless business out of Rogers’s hands and forcing the Quebecor deal, Casey said. “The outstanding question for investors is will it take a victory lap?”