Rogers Communications has signed a deal to buy Shaw Communications in a transaction valued at $26 billion, including debt, which would create Canada's No. 2 cellular operator — but is likely to face stiff regulatory scrutiny.
Under the plan, Rogers will pay $40.50 in cash for each of Shaw's issued and outstanding class A and class B shares. Shaw's class B shares closed at $23.90 on the Toronto Stock Exchange on Friday.
As part of the transaction, the companies said Rogers will invest $2.5 billion in 5G networks over the next five years across Western Canada.
Rogers also says it will create a new $1 billion fund dedicated to connecting rural, remote and Indigenous communities across Western Canada to high-speed internet service.
By acquiring fourth-ranked Shaw, Rogers would leap past current No. 2 Telus to take on market leader BCE Inc., the publicly traded holding company for the Bell Canada group of companies.
Deal subject to shareholder approval, regulatory review
The deal, which requires shareholder approval, is subject to other customary closing conditions, as well as approvals from Canadian regulators. It is expected to close in the first half of 2022.
The deal will face review by the independent Competition Bureau of Canada, the Canadian Radio-television and Telecommunications Commission (CRTC), as well as the federal department of Innovation, Science, and Economic Development (ISED).
Canadian Innovation Minister François-Philippe Champagne said the review would focus on "affordability, competition, and innovation."
Rogers chief executive Joe Natale told analysts in a Monday morning conference call that it's too early to speculate on whether the competitors will be required to divest any of their operations.
"But we feel confident this transaction will be approved," Natale said.
East-West split currently
There's little overlap between the Shaw and Rogers cable and internet businesses, which are in Western and Eastern Canada respectively, so Natale said he thinks most of the focus will be on their wireless businesses.
"And I won't get into sort of what is our thinking on that, for obvious reasons," Natale said.
Rogers owns a national wireless network that does business under the Rogers, Fido and Chatr brands. Shaw owns Freedom Mobile and Shaw Mobile in Alberta, B.C. and Ontario.
Executives from the two companies revealed few details regarding how they expect to achieve $1 billion of synergies, which will be mostly from cost savings.
However, they did say that savings in operating expenses will likely be more significant than savings from capital spending on equipment.
Rogers chief financial officer Tony Staffieri said that, with the regulatory approvals still at least a year away, there are too many variables to be decided to make predictions on cost cutting.
Shaw CEO confident in long-term benefits
However, the joint news conference made it clear that the leadership of the two family-controlled companies believe there will be great benefits from the combination.
"While unlocking tremendous shareholder value, combining [the] companies also creates a truly national provider with the capacity to invest greater resources expeditiously to build the wireline and wireless networks that all Canadians need for the long term," Shaw executive chair and CEO Brad Shaw said in a statement.
The combined company will create a Western regional headquarters in Calgary, where the president of Western operations and other senior executives will be based.
Rogers said it has secured committed financing to cover the cash portion of the deal, while about 60 per cent of the Shaw family shares will be exchanged for 23.6 million Rogers B-class shares.
Brad Shaw and another director to be nominated by the Shaw family — which will become one of the largest Rogers shareholders — will be named to the Rogers board.
With files from Reuters
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