(Bloomberg) – Rogers Communications Inc. has agreed to buy rival Shaw Communications Inc. in a $ 20 billion ($ 16 billion) deal that would unite Canada’s two largest cable providers and shake up its wireless industry.
The cash offer of $ 40.50 a share is supported by Shaw’s board and is not conditional on funding, the companies said on Monday. The proposal represents a 69% premium over Shaw’s closing price on Friday.
The transaction, if approved by regulators, would bring together companies controlled by two of Canada’s most powerful business families, which cooperated and competed in the battle against telecommunications rivals Telus Corp. and ECB Inc.
Rogers and Shaw shared, and sometimes exchanged, rival cable territories – with Shaw focused on western Canada and Rogers dominating Ontario. But Rogers is way ahead of Shaw because of its large wireless division, a business in which Shaw’s Freedom Mobile unit is a distant fourth in Canada. This is one of the reasons why Shaw’s stock price has fallen over the past five years.
Shaw Communications jumped 41% to C $ 33.65 at 9:31 am in Toronto. Rogers rose 3.3% to C $ 61.55.
The deal needs the approval of the Canadian government, which would have to accept a reduction in competition in the wireless sector, as some parts of the country would go from four to three operators. A review of the competition can take a year; Rogers and Shaw said they expect the transaction to be completed in the first half of 2022.
“This transaction will create long-term value for the shareholders of both companies and, just as importantly, this transaction will ensure that Canada’s cable and wireless industry can support the significant capital requirements needed for 5G networks and the essential connectivity that rural Canadians are in desperate need. ” Rogers’ chief financial officer, Tony Staffieri, said in a conference call with analysts.
Rogers said the deal would increase earnings and cash flow per share in the first year after closing and that the cost savings would reach C $ 1 billion annually in two years. Including the debt, the transaction is worth about C $ 26 billion.
Rogers has been trying to expand by acquisition recently, joining Altice USA Inc. to launch a hostile bid last August by Quebec-based Cogeco Inc. and its subsidiary Cogeco Communications Inc. The Cogeco controlling Audet family has repeatedly rejected the offer, and it collapsed in November.
If the deal is completed, Shaw CEO Brad Shaw and another director appointed by the Shaw family will join Rogers’ board. The Shaw family would also become the main shareholder in the combined company, with 60% of its shares in Shaw Communications being exchanged for 23.6 million Rogers Class B shares.
“Our families and businesses have known each other for many years and we have similar values and philosophies,” said Brad Shaw. “For decades, Rogers and Shaw were friendly, but intense competitors. But all the time we respect each other, admire each other and learn from each other’s actions. “
In November, Toronto-Dominion Bank analyst Vince Valentini said that Shaw could have the greatest growth potential in 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 investments in network, service and technology, the companies said in a statement. Rogers’ western Canadian headquarters would be at Shaw’s current Calgary headquarters.
But it is an open question whether the government would 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,” Julian Klymochko, who manages a publicly traded fund as chief investment officer at Accelerate Financial Technologies in Calgary.
“It will test the government’s appetite for accepting further consolidation in a highly concentrated sector and in which there has been a lot of regulatory pressure to cut prices. The result is highly uncertain, ”he said.
“We have made it clear that greater accessibility, competition and innovation in the Canadian telecommunications sector is as important to us as the government as it is to Canadians concerned about their cell phone bills,” said Canadian Industry Minister François-Philippe Champagne in a statement. communicated by email. “These goals will be at the front and center of the analysis of the implications of today’s news.”
(Updates with the share price movement in the fourth paragraph and other small changes)
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