Rogers and Shaw shares soar after competition court approves merger (2023)

Rogers and Shaw shares soar after competition court approves merger (1)

The shares of Rogers Communications Inc. and Shaw Communications Inc. rose on Friday after the competition court threw out a challenge to the merger of the two telecoms rivals.

The competition court rejected the competition commissioner's attempt to block the $26 billion deal, saying Rogers' plan to sell Shaw's Freedom Mobile assets to Quebecor Inc. would ensure that there are four strong players in major markets.

The court's decision, subject to appeal, left only the approval of Innovation, Science and Economic Development Canada (ISED), led by Industry Minister François-Philippe Champagne, for one of the largest mergers in Canadian history.

Rogers shares were trading up more than 5% at $64.10 on the TSX on Friday after the court's decision was published Thursday night. Shaw shares rose more than 9% to $39.07.

I'mDecision,The three-member court rejected arguments that merging the two telecoms giants would significantly reduce mobile competition, particularly after the companies reached a parallel agreement to buy Freedom from Quebecor-based Vidéotron Ltd. for sale, an important player in Quebec but with little presence elsewhere.

On Friday, the competition commissioner told companies he is appealing the court's ruling that would have allowed Quebecor's Freedom Mobile merger and acquisition and is seeking an injunction to stop the proposed transactions from going ahead, pending appeal.

"We remain committed to these pro-competitive transactions that will bring more choice, more accessibility and more connectivity to Canadians," Rogers and Shaw said in a joint statement.

“The Court's decision was correct, and the Court clarified in its summary that the transactions we are proposing are unlikely to significantly reduce competition in Alberta and British Columbia. Rather, as the court concluded, the transactions are likely to result in increased competition.”

The statement added that the companies are "deeply disappointed that the Commissioner continues to attempt to deny Canada and Canadians the benefits that will result from these proposed transactions."

During the four-week hearings, lawyers for theargued the officethat selling Freedom to Quebecor would not be enough to seriously challenge the largest Rogers and the country's two other big telecommunications companies, BCE Inc. and Telus Corp., and he insisted that Freedom would be weaker outside of Shaw.

But the court rejected those arguments, saying the tripartite agreement stipulated that Shaw would first transfer Freedom to Vidéotron and only then would Rogers acquire the remainder of Shaw through a merger agreement.

"The court determined that the proposed transactions and ancillary arrangements comprising the agreement ... are not likely to materially impede or reduce competition," the ruling said. "In other words, the combination and divestment are unlikely to result in prices substantially higher than those that would likely prevail without the deal."

The arbitral tribunal also concluded that the merger and divestment were unlikely to result in a significantly lower level of non-price competition, i.e., service, quality, variety and innovation, compared to what would likely exist without or agreement.

"We are pleased with the positive decision of the competition court and thank the members of the competition court for their work in reaching a speedy decision," the two companies said in a joint statement. “This is an important milestone in the regulatory process and brings us one step closer to completing a series of transformative transactions proposed by Rogers, Shaw and Quebecor. We look forward to reviewing the details of the decision and working with the Minister of Innovation, Science and Industry to remove the final regulatory hurdle to complete these transactions."

Rogers and Shaw extended the external date to complete the merger to January 31, automatically extending Quebecor's acquisition of Freedom to the same date.

Rogersannounced its plan to acquire Shawmore than a year ago. The deal was accepted quite easily by the Canadian Radiotelevision and Telecommunications Commission, albeit on more expensive terms than initially envisaged. But it hit an unexpected snag when the competition office sought a "complete block" on the takeover.

Freedom proved to be a sticking point as the brand's success in Ottawa was seen as evidence that a fourth player could keep the ECB's Bell, Rogers and Telus on their toes.Rogers turned to Quebecor, which analysts saw as an obvious buyer for Freedom, as its assets would allow Chief Executive Pierre Karl Péladeau to expand wireless services outside his home province.

Quebecor were left out of previous talks due to previously disputed deals with Rogers. Freedom's $2.85 billion price tag was lower than analysts' estimates and about $900 million less thanAnthony Lacavera said his company Globalive Capital Inc.he was willing to pay.

Some said it would take an outsider like Lacavera to disrupt the telecommunications industry in clubs. However, the court sided with those who said that only an established company with deep pockets could realistically challenge companies as large and entrenched as the Big Three in telecommunications.

"Vidéotron is an experienced disruptor that has had remarkable success in Quebec," the court said. "The company leveraged this experience to develop very detailed and fully calculated plans to enter and expand into the relevant Alberta, British Columbia and Ontario markets."

After Vidéotron purchased Freedom, the court recently included a bundle offeracquisition VMedia Inc.It will likely be the same price that Shaw Mobile and Freedom's bundled offerings would have cost without the merger.

The court concluded that the same is likely to be true for the "wireless only" offerings from Freedom and Vidéotron's Fizz digital brand, compared to the equivalent offerings from Shaw Mobile and Freedom.

Furthermore, the court said that Vidéotron, which is in the process of rolling out 5G services in Quebec, is likely to do the same in Alberta and BC. within a timeframe that ensures that competition is not materially impeded or reduced.

“It must be emphasized that Alberta and B.C. There will continue to be four strong competitors, namely Bell, Telus, Rogers and Vidéotron, as is the case today," the decision reads. "Vidéotron's entry into these markets is likely to ensure that competition and innovation remain strong."

Lacavera, who was trying to buy Freedom, which relied on movable assets sold in 2015, asked the government to halt the Rogers-Shaw merger and Freedom's sale to Quebecor.

"It is no surprise that competition law, which has failed to protect Canadians from anticompetitive mergers like this one for the last 40 years, has failed us again," he said in a statement on Friday morning.

"Anyone familiar with the Canadian telecommunications industry will recognize that Rogers' acquisition of Shaw will result in even greater concentration of the industry, even less competition and, of course, even higher prices for Canadians."

W. Michael Osborne, president of the Canada competition practice at law firm Cozen O'Connor LLP, said the court's decision was a win for the companies.

"It wasn't a close victory for Rogers. The Commissioner's case appears to have been largely dismissed," he said. "The arbitral tribunal not only concluded that the merger would not materially reduce or eliminate competition; it went further and concluded that the change in form caused by the divestment would increase competition."

Regarding the approval of ISED, Champagne expressed its willingness to approve the sale of Freedom to Quebecor/Vidéotron in October, defining the conditions it considers acceptable for the transmission of the radio spectrum.

Vidéotron would need to hold Freedom's spectrum licenses for at least 10 years and bring competitive wireless deals to Ontario and western Canada, such as Quebec, where prices have been reduced by 20%.

On October 25, Péladeau said in a statement that his company would accept Champagne's terms and incorporate them into the transaction with Rogers and Shaw.

Desjardins Group analyst Jérome Dubreuil said the court's decision means the merger is highly likely to go through, which should help the share prices of the three companies involved.

"While hurdles remain (leading to some uncertainty as to the timing of closing), we believe this is an important development that increases the chances that the deal will eventually close by around 95 percent," he said in a note to clients on Friday. -fair. morning.

Maher Yaghi, a telecommunications analyst at Scotiabank, said the Competition Office has 30 days to appeal the court's decision and may seek a court order suspending transactions until an appeal is heard.

“We would not be surprised if Rogers waits to see if and why the office can appeal before closing, even with ISED approval,” Yaghi said in a note to clients.

The dismissal and the competition court's initial reasons appeared in ainformative notepublished on your website. The court "is working to issue a public version of its full decision in both official languages ​​within approximately 48 hours," the document says.

After the summary decision was published on Thursday, a competition expert said the antitrust tribunal, which included Judge Paul Crampton and lay members Wiktor Askanas and Ramaz Samrout, appeared to have rushed its decision.

"The ruling, while disappointing, is really a product of our outdated laws," said Keldon Bester, a consultant and researcher specializing in antitrust and competition issues in Canada. "And what interested me most was the haste of the decision and the time of 10 pm. The publication of the summary of the decision is an example of this."

Bester, who worked for the competition office, said parties involved in the hearings had asked for a expedited procedure, aiming for a decision between 10 and 30 days after the hearing. In non-accelerated cases, the court takes more than 200 days on average to reach a decision, he said.

Rogers' lawyers emphasized during the hearings that the company would have to pay an additional $250 million to bondholders if a decision was not reached by Jan. 31.

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