(Bloomberg) — Canada’s antitrust body officially launched its case to block Rogers Communications Inc.’s $16 billion takeover of Shaw Communications Inc., saying it will harm consumers by removing a company that has helped drive wireless bills lower.
The federal Competition Bureau said it’s seeking a “full block” of the deal, which is one of the country’s largest-ever mergers. It said Shaw’s Freedom Mobile division has helped keep Canada’s three dominant telecommunications companies in check by competing with “aggressive” pricing and better data plans.
“Eliminating Shaw would remove a strong, independent competitor in Canada’s wireless market — one that has driven down prices, made data more accessible, and offered innovative services to its customers,” Matthew Boswell, Canada’s competition commissioner, said in a statement. “We are taking action to block this merger to preserve competition and choice for an essential service that Canadians expect to be affordable and high quality.”
The move confirms a news release early Saturday from Rogers and Shaw saying they expected the regulator to sue. Shaw tumbled 7.2% Monday to C$34.87 — its biggest drop since March 2020. Rogers declined 4.1%.
Rogers and Shaw will have to agree to changes or divestitures that satisfy the Competition Bureau or fight it at the country’s Competition Tribunal. The latter could take six months or more.
The companies have said they remain committed to the deal and extended the closing deadline to July 31. Rogers has agreed to sell all of Freedom Mobile, but the bureau may also want to ensure the buyer has the capacity to invest heavily in the business.
Settling with the antitrust watchdog is the best option for Rogers and Shaw, according to Robin Shaban, a competition expert and co-founder of consulting firm Vivic Research in Ottawa.
“At the end of the day, no one really wants litigation. It’s not pleasant. It’s not cost effective,” Shaban said. “So if there’s a way to remedy the situation without having to litigate, that makes sense.”
A spokesperson for Rogers declined to comment, saying the company wants to see the bureau’s application first.
Turning to Quebecor
Some analysts say the companies can still complete the transaction despite Boswell’s objection.
“Sometimes the Competition Bureau just wants to slow things, put forward its arguments to be discussed with or without the Competition Tribunal, and possibly resolve issues,” National Bank Financial analyst Adam Shine said in a note to investors. He kept his target price on Shaw at C$40.50, which is the offer from Rogers.
To settle the matter out of court, Rogers has opened the door to selling assets to Montreal-based communications firm Quebecor Inc., according to a person familiar with the matter.
Rogers has drafted a deal to sell Freedom to Xplornet Communications Inc. But it’s possible that Quebecor ownership would be more acceptable to regulators because it already has 1.6 million wireless customers and has been a big spender on 5G spectrum.
Quebecor spent C$830 million ($639 million) on wireless licenses in an auction last year, and some are in Western Canada and could potentially be used to upgrade Freedom’s service, which isn’t a 5G network. Quebecor Chief Executive Officer Pierre Karl Peladeau has publicly expressed interest in buying Freedom under the right conditions.
“What it means is the bureau is trying to put pressure on the parties, Rogers and Shaw, to conduct a fairer sale of Freedom wireless — to try to find a stronger competitor to offload it to” than Xplornet, according to Mark Warner, principal at MAAW Law in Toronto.
“I’m not sure it really means we’ll actually see a contested merger. We might,” Warner said on BNN Bloomberg Television prior to the competition bureau’s statement. “But we do know that the commissioner of competition, Matthew Boswell, has talked about using the threat of litigation, if not litigation itself, to get better outcomes in negotiated settlements from parties.”
Wireless appears to be the only major antitrust problem. The bureau’s statement doesn’t address the cable and internet businesses that Shaw is selling, which have very little overlap with Rogers. Shaw operates cable systems mostly in Western Canada, while Rogers is in Ontario and the Atlantic provinces.
Shaw’s Freedom Mobile division is Canada’s fourth-largest provider, with a presence in several major markets including Toronto and Vancouver. Rogers has long been the largest wireless company in Canada, with more than 11 million subscribers.
(Updates closing share price)
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