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Rogers-Shaw M&A approval raises prospects of political meddling in Canadian dealmaking

Published 04/02/2023, 10:06 AM
Updated 04/02/2023, 10:31 AM
© Reuters. FILE PHOTO: Ethernet cables are seen in front of Rogers and Shaw Communications logos in this illustration taken, July 8, 2022. REUTERS/Dado Ruvic/Illustrations//File Photo

By Maiya Keidan and Divya Rajagopal

TORONTO (Reuters) - Canada's move to clear Rogers (NYSE:ROG) Communications Inc's C$20 billion ($15 billion) bid for Shaw Communications (NYSE:SJR) Inc after two years should have been a balm to markets. Instead, dealmakers are worried about potential government intervention in mergers involving other sensitive sectors.

On Friday, Minister of Innovation, Science and Industry Francois-Philippe Champagne agreed to the transfer of spectrum licenses held by Shaw's Freedom Mobile unit to Quebecor Inc after securing "unprecedented and legally binding commitments" and outlined hefty penalties for breaching the undertakings.

That helped pave the way for Rogers' purchase of Shaw to proceed. But, in a dealmaking industry already challenged by rising interest rates and a cloudy economic future, the minister's decision is bringing added uncertainty, lawyers said.

"The minister did not have any authority to approve or deny this merger except with respect to the spectrum licenses," Michael Osborne, a competition lawyer at law firm Cozen O'Connor, told Reuters.

"So for him to leverage that and effectively impose conditions on the party that he wouldn't actually have the right under the statute to impose conditions is an incredible extension of power," Osborne added.

Osborne worries there could be other cases where the minister decides he does not trust the competition bureau and wants to start politically interfering in mergers.

Champagne said Canadians "rightfully expect and deserve more from their telecom sector."

"We will continue to ensure the industry meets these standards, including improving competition, reliability and affordability," he added while approving the transfer of spectrum licenses.

The minister’s office did not offer an immediate comment  in response to a Reuters query on political interference in M&A.


Consumer advocates have long derided the lack of competition in Canada from industries ranging from banking to telecoms. Rogers' deal for Shaw was politically sensitive due to the sky-high wireless bills Canadians pay, which are among the highest in the world.

Yet, the competition bureau failed to block the merger, losing their protracted battle when a federal court dismissed the case. Champagne, who had the last say on the deal, stepped in and extracted binding conditions, which eventually led to the deal approval.

Now, dealmakers worry the government could intervene in other politically sensitive M&A.

"What Rogers/Shaw illustrates is that today Canada's competition regime is highly political with unpredictable outcomes," said Neil Selfe, chief executive at advisory firm INFOR Financial.

"In Canada, we have a toothless regulatory regime" and a political ... (operative who) ... hasn't said when he is or isn't going to act, and that just creates uncertainty and ultimately has a chilling effect on M&A."

The antitrust bureau said in a statement on Friday that a competitive telecommunications sector is "vitally important" for Canadians, and the bureau will continue to do everything in its power to promote competition in the sector.

It was not clear which sectors might come most under fire, but Selfe said the more politicized an issue is, the more likely the government would react. To be sure, dealmaking in Canada follows the rule book, and political interference is a rarity, lawyers say.

© Reuters. FILE PHOTO: Ethernet cables are seen in front of Rogers and Shaw Communications logos in this illustration taken, July 8, 2022. REUTERS/Dado Ruvic/Illustrations//File Photo

Jennifer Quaid, associate professor and vice-dean research, faculty of law, University of Ottawa, said politicians should not intervene in cases where tribunals already make a decision. 

"There are not a lot of things people in competition law disagree on. But everyone agrees that politics should just stay out of mergers," Quaid added.

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