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Source: Chockdee Permploysiri, Shutterstock
The Rogers-Shaw deal has been a talking point of the Canadian telecom industry for the last two decades. But Bay Street analysts expect the duo to run into hiccups before consolidation, such as the debt-heavy nature of the deal and breach of fair competition. Moreover, the deal is yet to cross regulatory hurdles.
Both telecom players stated that the joint entity would invest C$6.5 billion to develop a 5G network in the western region of the country. This multi-billion investment would create 3,000 jobs across British Columbia, Alberta, Manitoba, and Saskatchewan. But getting a credit facility for their 5G ventures could be an uphill struggle.
Rogers Communications Inc. (TSX: RCI.B) has agreed to pay off Shaw’s debt worth C$ 6 billion, as a part of the C$ 26 billion-deal transaction. However, Rogers expects 5x pro forma leverage after the completion of the potential acquisition of Shaw Communications Inc. (TSX: SJR.B).
What Does Make This Deal Expensive?
Along with paying Shaw’s debt, Rogers has committed a payment of 70 per cent premium per common share of Shaw Communications. However, the Calgary-based company’s share has improved by over 43 per cent to C$ 34.70 in the last two trading sessions. But it is still trading below 14.32 per cent from the proposed price of C$ 40.50 per piece.
Both parties are anticipating the federal government’s support on their 5G rollout and fair competition. But Canadian policymakers are supporting the evolution of a strong fourth contender to compete with the top three telecom players BCE Inc. (TSX:BCE), Telus Corporation and Rogers by earmarking spectrum for new contestants to acquire.
Joe Natale, CEO, Rogers, stated that the combined company would scale up the 5G network across a vast territory. Joe also claimed to keep internet prices low despite huge expenses in the 5G rollout after the merger.
Source: Pixabay.com
Concerns For Wireless Competitors
The acquisition of a telecom rival could be a potential hurdle to the transaction. Reducing competition in the domain could hurt affordable data availability in the long run.
The top two telecom stocks – BCE and Telus – have been on a losing spree since the deal was announcement. In contrast, stocks of Rogers and Shaw have gained over 9 per cent and 44 per cent, respectively.
The Minister of Industry Francois-Philippe Champagne assured that the government evaluation would concentrate on “affordability, innovation, and competition” in the telecom sector. Regulators could enforce alteration to the proposed deal to rectify any violation of fair competition.
The deal has a bumpy path to cross, as the transaction is yet to be examined by Competition Bureau Canada and the telecommunications regulator.
