Rogers' 'sweeteners' for $16 bln Shaw takeover may test Canadian regulatory, political patience

COGECO

16/03/2021 10:00

By Moira Warburton and Maiya Keidan
    TORONTO, March 16 (Reuters) - Rogers Communications Inc's
efforts to secure its C$20 billion ($16 billion) acquisition of
Shaw Communications Inc could be insufficient to overcome
regulatory hurdles and political opposition amid concerns
Canadians face some of the world's highest phone bills.
    Rogers  RCIb.TO  agreed on Monday to buy Shaw  SJRb.TO   in
a deal that would create Canada's second-largest cellular and
cable operator, but the Canadian government was quick to say it
would attract stiff regulatory scrutiny.  urn:newsml:reuters.com:*:nL4N2LD308
    Analysts and fund managers say the company is facing an
uphill battle closing the deal even as it has offered some
incentives such as committing to maintaining affordable wireless
plans with Shaw's Freedom Mobile carrier for three years,
investing C$2.5 billion over the next five years to build out 5G
in Western Canada, among others.
    While Shaw shares surged on the bid, they closed 16.4% below
Rogers' offer price, which investors said reflected the
regulatory uncertainty.
    The deal represents Rogers' second attempt in less than six
months to consolidate Canada's concentrated telecoms market,
where the top three operators control about 90% of the C$53.1
billion market. Rogers' effort to buy Cogeco Inc's  CGO.TO 
Canadian assets was rebuffed by Cogeco's top shareholder in
September.  urn:newsml:reuters.com:*:nL4N2FZ343
    The deal suggests that both Shaw and Rogers had already
"beaten the doors down in Ottawa ahead of time and tried to suss
things out," said Lawrence Surtees, lead communications analyst
for IDC Canada. 
    But "the jury is still out" on whether regulators will
approve it despite "all the little sweeteners in the deal," he
said, also pointing to Rogers' promise to create a C$1 billion
broadband fund.
    Higher concentration in wireless business is emerging as an
area of concern as the deal would cut the number of wireless
providers to three from four in Ontario, Alberta and British
Columbia, which constitute 67% of Canada's population, BMO
Capital Markets analyst Tim Casey wrote in a note.
    It is "no sure thing" that the deal will win the blessing of
regulators, he added.
    
    ASSET SALES
    A top-ten shareholder in Shaw said the deal comes with
regulatory risk, particularly in Ontario.
    "That's really where you would see them push up against the
50% benchmark," the shareholder said, referring to the size of
the market share Rogers and Shaw would have in Ontario after the
deal, adding that a solution could be divesting some assets. 
    Rogers did not respond to a request for comment on the
question of asset sales.
    When Canadian telecom company Bell Canada  BCE.TO  took over
Manitoba Telecom Services in 2017, it agreed to sell one-third
of the company's monthly contract wireless customers and
one-third of brick-and-mortar stores to Telus Corp  T.TO .      
    The shareholder said Rogers would likely be willing to
offload some assets in the east of the country, since the deal's
value is in wireline infrastructure in western Canada. So-called
'wireline' assets  transmit information using a physical wire
and are considered key to the rollout of 5G.
    "If we have to sell C$2 billion of assets in the east,
that's fine," said the top shareholder.
    Canadian Innovation Minister Francois-Philippe Champagne
said the review would focus on "affordability, competition, and
innovation."
    The deal could attract extra attention in a year when Canada
looks likely to have a federal election. Canada's telecoms
industry came under fire ahead of the last federal election,
with voters complaining about cellphone bills, which are among
the highest in the world.
    In March, Prime Minister Justin Trudeau's minority Liberal
government ordered Canada's top three telecom operators to cut
prices on their mid-range wireless service plans by 25% within
two years or face regulatory action.
    Jason Kenney, premier of Alberta, where Shaw is based, said
on Monday his government would monitor regulatory filings
closely and likely make its own submissions to federal agencies.
    "In particular we'll seek to have the commitments that it
(Rogers) has made - increased employment and investment - made a
condition of federal regulatory approval," Kenney said.    

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 (Additional reporting by Nia Williams in Calgary
Reporting by Maiya Keidan in Toronto and Moira Warburton in
Vancouver;
Editing by Denny Thomas and Ana Nicolaci da Costa)
 ((Moira.Warburton@thomsonreuters.com ; 416-687-7996;
437-771-3124;))