On Mar. 15, 2021, Rogers Communications Inc. announced a $26 billion, debt-including agreement to purchase Shaw Communications.
Rogers will pay the holders of both Shaw’s A and B class shares $40.50 in cash per share, and some payment is being received by Rogers’ shares. As of Mar. 26, Shaw’s Class B shares closed at $23.90 on the Toronto Stock Exchange.
According to the company, Rogers is going to invest $2.5 billion in 5G networks throughout Western Canada in the next five years. They will also create a new one billion dollar fund to provide high-speed internet service to rural, remote and Indigenous communities across Western Canada.
Rogers CEO Joe Natale said combining two major companies will extend more job opportunities with more investments in Western Canada. He added that this will bring more people and firms together, providing the best-in-class services and infrastructure in Canada, and give the consumers and businesses more competition and choice.
However, Brian Paul Cozzarin, a professor at UW’s Faculty of Engineering, thinks this acquisition, though marketed as good, can actually be detrimental to consumers.
“Rogers’ acquisition of Shaw is a good move for the corporation and a bad move for consumers. Even though Rogers says they are ‘helping’ customers, this is a market share game. Oligopoly is the most prevalent form of market structure. The higher the barriers to entry the harder it is for competitors to enter the market,” Cozzarin said. “Because of massive infrastructure costs, the wireless industry has high barriers to entry. Oligopolists can affect market prices but are limited by their rivals’ reactions. Thus, their market power is not as strong as that of a monopolist.”
In a morning conference call, he told analysts that it is too early to determine if other national wireless and rival companies are forced to dispose of all of their operations before the federal regulator and the Competition Bureau approves.
However, Natale said the transaction is going to be approved. Therefore, they should feel confident about it. “This transaction does not get done without regulatory approval. It’s our responsibility to make that happen. And we’re going to sit down with regulators and just work through the pieces,” Natale explained.
Aravinda Galappatthige, an analyst at Canaccord Genuity, said “If the transaction can go through without a divestiture of wireless, it would be a key positive for all three [national] wireless names [especially Rogers of course].”
Cozzarin, however, is unsure about whether this transaction will be approved or not. “Rogers wants to merge with Shaw to reduce competition and increase market power [market power meaning greater ability to influence prices],” Cozzarin said. “Most countries have antitrust laws to regulate the market power of proposed mergers and acquisitions. This includes Canada, however, historically our Competition Bureau has been very weak in terms of protecting consumers. It remains to be seen if they have the temerity to block the Shaw-Rogers merger.”
The Canadian Wireless Technology Association recorded that as of Sept. 30, 2020, there were about 33.8 billion users in Canada. Rogers gained the most users with an approximate total of 10.9 million subscribers, whereas Freedom—Shaw’s mobile subsidiary— gained 1.8 million subscribers.
When comparing the two networks, Rogers gains subscribers ten times more, which makes sense as to why they want to purchase Shaw.
According to Galappatthige, if Shaw were pressured to sell Freedom by regulators with little to no east presence in Ontario, then it is likely that they will lose to Videotron owner Québecor Inc.
There are, of course, some that do not want the agreement to be signed, such as Laura Tribe, the Chief Executive Officer of the OpenMedia Consumer Protection Group. Tribe said the government should not consent via a tweet that reads, “We need more competition in Canada — not less.”
Tribe claimed that each competitor has been consumed by Rogers, Bell or Telus over the years. “The outcome is always the same: more profits, bad plans and less choice for Canadians for the Big Three. This contract we can’t afford.”
The joint venture will build headquarters in Calgary, where the Western operations’ president and other senior executives are located. Together with another director, Brad Shaw was appointed to the Rogers board by the Shaw family, and is set to become one of Rogers’ biggest shareholders.
The deal also applies to closing conditions and authorizations from Canadian regulators, which require the shareholder’s permission. It is expected to close in the first half of 2022.