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Canadian bid to block Rogers-Shaw mega-deal more a long shot than lock

Stock MarketsMay 12, 2022 02:27PM ET
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2/2 © Reuters. FILE PHOTO: A person walks near the Rogers Communications building in Toronto, Ontario, Canada on October 22, 2021. REUTERS/Carlos Osorio 2/2

By Divya Rajagopal

TORONTO (Reuters) - Canada's Competition Bureau has blocked Rogers (NYSE:ROG) Communications' C$20 billion ($15.4 billion) proposal to buy Shaw Communications (NYSE:SJR), but the regulatory agency's patchy record in legal fights raises the prospect the deal could go through with more concessions.

The agency this week rejected the deal, saying it would undermine competition in a country that has some of the world's steepest wireless rates and where anger over high bills has prompted Canada's Liberal government to vow to cut prices.

Regulators also poured cold water on a proposed full divesture of Calgary-based Shaw's wireless business, Freedom Mobile, labeling it as insufficient to address the competition concerns. Armed with data showing the big three Canadian telecoms players - Rogers, BCE (NYSE:BCE) Inc and Telus (NYSE:TU) - were able to charge higher prices in markets where they were dominant, the bureau hopes to win its challenge in the Competition Tribunal.

But an analysis of the Competition Bureau's past regulatory battles makes the effort somewhat fanciful. Of the more than 1,500 mergers it has reviewed since 2009, only eight ended up being challenged, with six of those cases being lost or settled. The two others are pending.

"The bureau more often has been unsuccessful in winning such cases," said a lawyer who specializes in anti-competition cases and who declined to be named due to the sensitivity of the situation. "Companies usually settle the matter by presenting a consent agreement, or they use the efficiencies defense to win their case in the tribunal."

Consent agreements, which arise from a form of dispute resolution, were reached in 69 of the cases that went to the tribunal in the past 13 years.

While the agency would not comment on its track record, it said it either negotiates a remedy or challenges any merger deemed likely to harm competition in Canada.

Companies often have used section 96 of the federal Competition Act to successfully defend their deals in the legal arena, arguing that the efficiencies gained through the mergers outweigh the anti-competition effects, lawyers said. Rogers, which has an empire that includes large stakes in mass media, wireless communications, Internet and cable television, could present its efficiency defense to the tribunal, said two other lawyers not associated with the case.

The Toronto-based company said it was prepared to defend the transaction before the tribunal and will be filing a formal response to the Competition Bureau's injunction in due course.

Rogers has also promised to accelerate the development of its network in rural areas of Canada, expand combined network coverage, and enter markets that currently have only one provider.

Nevertheless, the uncertainties clouding the Rogers-Shaw tie-up have chilled investors, with shares of Shaw currently trading about 16% below Rogers' C$40.50 per share offer price.

POSSIBLE REMEDIES

Many lawyers and analysts say the deal would find support once the Rogers-Shaw side outlines a plan that goes beyond the mere divestiture of the Freedom Mobile business. "It comes down to what merger remedies the companies are ready to present to avoid a long-drawn litigation process," said the lawyer who specializes in anti-competition cases.

Lawyers point to a deal in 2017 in which the Competition Bureau secured a consent agreement with Bell to sell its six retail stores, 24,700 subscribers and 40 MHz of spectrum to regional player Xplornet to win approval to buy Manitoba Telecom Services. Cormark Securities said in a note this week that the remedy to satisfy regulatory concerns could entail a sale of Shaw's wireless business to Quebecor, a Montreal-based media and telecoms company that primarily serves the Canadian province of Quebec.

A Canadian federal government source told Reuters on Wednesday that Quebecor is seen as a credible potential buyer for Freedom Mobile.

"The opportunities are many and the alternatives promising," Quebecor Chief Executive Officer Pierre Karl Peladeau said in a statement on Thursday, referring to the prospect of acquiring Shaw's wireless assets.

($1 = 1.3030 Canadian dollars)

Canadian bid to block Rogers-Shaw mega-deal more a long shot than lock
 

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