17 February 2022

Rogers’ $26b acquisition of Shaw Communications

📡 Read how communication giant, Rogers acquired Shaw to dominate the Canadian market.
Asset 1890 e1645127376587 - ourGen - Rogers' $26b acquisition of Shaw Communications

1. Meet the acquirer

Tony Staffieri who is the President and Chief Executive Officer stated:

“…We make more possible for Canadians each and every day, proudly connecting them to a world of possibilities and the moments that matter most in their lives. Founded in 1960, we have grown to become a leading technology and media company thot strives to provide the very best in wireless, residential, and media to Canadians and Canadian businesses…”

Rogers Communications Inc. is a Canada based communications and media company. The Company operates through three segments: Wireless, Cable and Media. The Wireless segment offers wireless telecommunications operations. The cable segment offers cable telecommunications operations, and network connectivity through its fibre network and data centre assets to support a range of voice, data, networking, hosting, and cloud-based services.

The Media segment offers a diversified portfolio of media properties, including sports media and entertainment, television and radio broadcasting, speciality channels, multi-platform shopping, and digital media. Rogers announced its intent to acquire Shaw Communications for $26 billion, subject to regulatory and shareholder approval. This proposed acquisition is being criticized by the public lobby, as a move that would reduce national competition in Canadian wireless communication by removing one of the four major competitors from the market.

 

2. Rogers Communications Company Overview

  • Founded in 1960 headquartered in Toronto.
    Number of employees: 25,000
    Market Cap: 524.19 billion (as of Jan 2022)
    EV: $ 49.05 billion
    LTM Revenue: B14.42 billion
    LTM EBITDA: $5.7
    LTM EV/Revenue: 5.40
    LTM EV/EBITDA: 8.75

 

3. Meet the Target

Bradley Show who is the Chief Executive Officer stated:

“…Whether it’s providing Western Canada’s fastest Internet speeds or empowering entrepreneurs to
fulfil their potential, we’re proud of the innovative ways that we connect millions of Canadians
through our many lines of business…”

Shaw Communications Inc. is a Canada based telecommunication firm that offers Internet, television, and mobile phones services. Shaw was founded with a simple goal to provide Canadians with more value and more choice, now they offer residential telecom services primarily in Alberta and British Columbia, as well as satellite television services across the country.

In Saskatchewan, Manitoba, and Northern Ontario, it also runs smaller cable television systems. Shaw Mobile, a subsidiary of Shaw, delivers mobile services in Alberta, British Columbia, and Southern Ontario under the Freedom and Shaw Mobile brands. The Shaw Communications shareholders approved the $26 Merger with Roger Communications.

 

4. Shaw Communications Company Overview

  • Founded in 1966 headquartered in Calgary
    Number of employees: 9, 500
    Market Cap: 514.15 n (as of 24/12/2021) EV: $15.7million
    LTM Revenue: $5.51
    LTM EBITDA: $2.19 billion LTM EV/Revenue: 4.45 LTM EV/EBITDA: 9.67

 

5. Deal overview

Rogers communication will purchase all outstanding class A shares and Class B shares of Shaw Communications. The share price is $40.50 per share which will amount to $20Billion approximately adding a 70% premium to class B shares of Shaw communication and the payment will be made in cash and will not be financed or loaned. Transaction value will be approximately $ 26 billion out of which $6 billion will be used to pay off all the debts of Shaw Communication. Rogers will invest around $ 2.5 billion dollars in western Canada to build 5G networks in the next 5 years. They are aiming to create a new fund of $1 billion dedicated to the rural and native communities of Canada and bring them into the limelight by providing cheap internet and other networking facilities. They are also aiming to provide much better service to the existing customers and add value to their choice by investing another $3 Billion to support additional networks, services, technological advancements by maintaining and growing Shaw local shops.

This deal will also generate employment of around 3000 people after investing in new technologies and networking fields in Alberta British Columbia, Manitoba and many other places. The combined company will strive to provide additional wireless plans at reasonable prices. Ropers will not increase the wireless price of Freedom Mobile customers after the closure of the deal.

The transaction will create one of the most robust wholly-owned national networks which will give more competition to businesses and consumers and will also create a great wireless networking base for the future generations of Canada which can be used in different positive manners. After the deal Ropers will also expand its “Connected for Success” programme and will try to reach each and every Canadian home and give affordable wireless plans. The deal will also upgrade Canada’s digital infrastructure and accelerate digitization which will support innovation and also strengthen Canada’s economy. The Transaction will be implemented by way of a court-approved plan of arrangement under the Business Corporations Act (Alberta). The transaction will also require the approval of two-thirds votes which will be cast by class A and class B shareholders.

 

6. Projections and Assumptions

Rogers expects to generate CAD1 billion in annual synergies two years after the merger. These synergies include “reduced wholesale charges and network expenses, as well as the elimination of redundant technology and infrastructure,” and we expect them to be especially important as 5G is deployed. Rogers will also be able to use Shaw’s 1.4 million-kilometre fibre network for its 5G backhaul.

The acquisition of Shaw’s fixed network will help reduce high-speed fixed infrastructure overbuilding and strengthen Rogers’ footprint in Western Canada’s fixed sector. The combination will accelerate the delivery of critical 5G service across Western Canada, from rural areas to dense cities, more quickly than either company could achieve on its own.

Rogers will be able to compete with TELUS, the incumbent operator in the region, thanks to Shaw’s gigabit-capable HFC network. This growth in competitiveness in Western Canada could be viewed as a key positive element by the CRTC. With next-generation access, the combined company will cover more than 8 million premises. This is significantly more than TELUS covers but significantly less than Bell. This massive high-speed fixed network may encourage Rogers to build on Shaw’s convergent approach and offer fixed-mobile convergence services.

In the B2B segment, however, there will be little synergies. Shaw and Rogers have always focused on small and medium-sized businesses, with a tiny presence in the large-business market. As a result, if the merger goes through, TELUS and Bell are expected to continue to dominate this market. Shaw shares jumped 42% to 834, but traded well below the offer price of 840.50, suggesting doubts about the deal, which is valued at $26 billion including debt. Shares of Rogers were also up 7% at $64.

Once approved, the transaction is expected to generate significant growth and efficiency opportunities to support the accelerated investment into 5G capabilities. Anticipated benefits include access to new services and capabilities for Shaw customers as well as savings opportunities for Ropers, such as reduced wholesale charges and network costs and the elimination of duplicative technology associated with greater scale.

Ropers offered several societal benefits to make the deal more palatable to the regulators. These include a commitment to spend $2.5 billion on 5G build-out in Western Canada and 81 billion to connect rural, remote, and indigenous communities. The combined company would also maintain its Western office in Calgary and added 3,000 net new jobs. Finally, Ropers committed to leaving prices for Freedom Mobile customers frozen for three years after the deal closes. The additional investment of the combined company will continue to diversify the Alberta and British Columbia economies with next-generation economic opportunities.

Ropers will establish a new National Center of Technology and Engineering Excellence, located in Calgary, to support the needs of the new combined company, creating hundreds of new high-skilled jobs and opportunities to work with Canadian developers to create new consumers and businesses applications and services.

 

7. Risk and uncertainties

Rogers’ decision to acquire Shaw Telecommunications, one of its competitors in the Canadian Telecom space may sound like a wise deal to a few investors, yet it was heavily criticized by the public as a move that would reduce national competition in Canadian wireless communication by removing one of the four major competitors from the market. On the flip side, the transaction might be good news to the public, as Rogers has decided to invest $2.5 Billion to build a 5G network in Western Canada. Nonetheless, there are certain risks attached to this deal.

The deal is a high-stakes wager for Rogers Communications whose Debt shall surge significantly. According to reputable analysts, it is projected that Rogers leverage is projected to jump to 5x after buying Class A and B shares at a 70% premium than the market price. Bond Traders immediately expressed their concerns on the announcement of the merger and the company stocks also failed to perform significantly in the markets ever since. The proposed merger fails to excite the investors, whose voting rights shall play a pivotal role in closing the deal. Ever since the announcement of the merger, shares of Rogers Communication trade at 1.5% lower while shares of Shaw Communications have gained 10.4% since March 2021. For the deal to close, it’s still a long way and very uncertain as the transactions shall be thoroughly scrutinized. The transactions are subject to other customary closing conditions including court and stock exchange approval, as well as approvals from Canadian regulators. Finally, the merger deal has triggered particular concern about Canada’s future in SG technology while few people and groups such as BCE and Corus Entertainment have raised their concern to the federal regulators over an unfair monopolistic future in the Broadcast Industry. The upcoming SG spectrum audition which was delayed for a year due to the Covid-19 pandemic shall witness smaller companies hard-pressed to participate. There are no rules ensuring an equal or regulated distribution of any spectrum and hence can result in the shutdown of smaller companies in the future, producing a monopolistic market for Roger-Shaw. There is a possibility that the Canadian government may intervene and put a halt to such a merger if they do not feel comfortable putting the future of the country’s technological advancement onto one hand only.

Conclusively, we expect a very tight competition between the telecommunications companies since. the deal has triggered particular concern about Canada’s upcoming 5G spectrum auction. All the players have to work harder and bring new ideas which would enhance their position in the world of telecommunications.

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