Rogers & Shaw shelve merger deal: Where does it leave RCI & SJR stocks?

Highlights

• Rogers (TSX: RCI.B) and Shaw (TSX: SJR.B) have agreed to shelve their merger deal for the time being.
• The telecom players have agreed not to close the merger deal until they reach a settlement with the regulatory bodies.
• RCI.B stock spiked by almost eight per cent in 2022, while SJR.B stock plummeted by about six per cent year-to-date (YTD).

Rogers Communications (TSX: RCI.B) and Shaw Communications (TSX: SJR.B) have agreed to temporarily shelve their merger deal of C$ 26 billion, the two Canadian telecom companies said on Monday, May 30. This interim injunction came in response to the application filed by the Competition Bureau on May 9 to permanently block the proposed merger deal.

The Bureau alleges that eliminating Shaw Communications from the wireless service market, which is already concentrated, would substantially increase Rogers’ market share and likely result in consumers paying higher wireless prices.

What should investors know about Rogers-Shaw’s interim injunction?

Rogers and Shaw have agreed not to close the merger deal until the two telecom companies are able to negotiate a settlement with the Commissioner or the Competition Tribunal reaches a ruling after hearing both the cases.

According to the agreement, Rogers Communications agreed not to enforce any conditions on Shaw Communications that would limit its wireless operations. The Commissioner also requested an expedited hearing process before the Tribunal, to which both the companies agreed.

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What Rogers (TSX: RCI.B) and Shaw (TSX: SJR.B) say about the deal

As per the statement released by Rogers and Shaw on May 30, the combined entity is expected to enhance the capabilities of both companies to invest in digital infrastructure, employment generation and innovation.

The merged entity, they believe, will provide more choices to businesses and consumers, minimize the digital divide across regions and promote greater competition by offering full “economic and social” benefits of “next generation networks”.

The Rogers-Shaw transaction includes an investment of C$ 2.5 billion over the next five years to build fifth generation networks in western Canada. It also includes C$ 1 billion dedicated to Rogers Rural and Indigenous Connectivity Fund to connect rural, remote and indigenous people across western parts of the country. In addition, the transaction plans to provide an additional investment of C$ 3 billion and net job creation of up to 3,000 in the western region.

It is also expected to extend Rogers Connected to a nationwide low-cost broadband program to help seniors and low-income consumers.

Rogers and Shaw’s stock and financial performance overview

RCI.B stock spiked by almost eight per cent in 2022, while SJR.B stock plummeted by about six per cent year-to-date (YTD). 

The Relative Strength Index (RSI) is a technical indicator which measures the bullish (more than 70) or bearish (less than 30) price momentum of the stock. RCI.B stock held an RSI value of 37.88 on May 30, while SJR.B’s RSI value stood comparatively higher at 45.74 this day.

On the financial front, Rogers’s total revenue and net profit grew by four per cent and nine per cent year-over-year (YoY), respectively, in Q1 FY2022. On the other hand, Shaw’s revenue and net profit slipped by two per cent and 9.7 per cent YoY, respectively, in Q2 FY2022.

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Please note, the above content constitutes a very preliminary observation based on the industry, and is of limited scope without any in-depth fundamental valuation or technical analysis. Any interest in stocks or sectors should be thoroughly evaluated taking into consideration the associated risks.