Purchase of Freedom Mobile | Quebecor “reaps a ripe fruit”

Initial reactions to Quebecor’s agreement to purchase Freedom Mobile have been positive for the Quebec telecoms conglomerate. National Bank Financial is so enthusiastic that it changes its recommendation and henceforth recommends buying the Videotron owner’s stock.

Posted at 6:00 am

Richard Dufour

Richard Dufour
The press

Quebecor, Rogers and Shaw announced an agreement Friday night under which Quebecor will agree to pay $2.85 billion for Freedom Mobile, a wireless services company that operates in Ontario, Alberta and British Columbia. The agreement would add approximately 1.3 million subscribers to Quebecor’s customer base.

Not only is the deal announced at a reasonable price, argues National Bank Financial analyst Adam Shine, but it also doesn’t require an equity offering or a financial partner to go through.

That expert, in a note written Sunday, indicates that he expects Freedom to adopt the Fizz name, Videotron’s low-cost cell phone and Internet provider, and that Quebecor will offer wireless services and a bundle (Internet and wireless cable) in Ontario, Alberta and British Columbia through an agreement to resell Rogers Internet services purchased under a wholesale arrangement.

Rogers and Shaw agreed to sell Freedom Mobile this spring in a bid to persuade regulators to approve Rogers’ acquisition of Shaw, a deal valued at $26 billion (including debt).

Adam Shine says he disagrees with the Competition Bureau, which last week reiterated its opposition to Shaw marrying Rogers, saying selling Freedom Mobile would not be an effective solution and would weaken Freedom as a competitor.

For his part, his colleague Jérôme Dubreuil of Desjardins Securities adds that the Freedom Accord allows Quebecor to “reap ripe fruit” and broaden its horizons at a “reasonable” price, while increasing the likelihood of Rogers merging with Shaw .

Quebecor’s track record, balance sheet, expertise and assets are all elements that make it increasingly difficult for regulators to claim that the competitive environment would be materially affected by a Rogers-shaw merger.

Hieronymus Dubreuil

“It is difficult to predict the next actions by the competition authority, but the regulator is encouraged to close the file quickly so that Quebecor can compete effectively as soon as possible,” he adds.

Positive reaction

This analyst also expects a positive reaction from investors on Monday. “Although the market has so far seemed generally unfavorable for Quebecor to acquire Freedom, the transaction made sense at a certain price. And at 2.85 billion, Quebecor is making a transaction at an attractive price, he says. He previously estimated Shaw’s mobile fortune at more than $4 billion.

However, Jérôme Dubreuil specifies that Quebecor executives must provide more details on strategy and financial expectations in order to reassure investors and allow Quebecor to truly reduce the valuation discount currently observed on the stock.

Launching wireless activities outside of Quebec involves financial risks, among other things.

In particular, Jérôme Dubreuil believes Quebecor could slow the pace of its share buybacks and the growth of its dividend.

“Shaw has slowed its capital spending significantly since announcing its merger with Rogers, and Quebecor will have some catching up to do in terms of wireless investments. He estimates that Quebecor will have to invest $200 million in catch-up costs in the first three years after the transaction alone.

Jérôme Dubreuil also anticipates an increase in competition – i.e. price pressure – in the mobile communications market once the merger has been completed.

A settlement of the 850 million lawsuit filed by Quebecor against Rogers last fall is also not part of the agreement for Freedom Mobile. However, Adam Shine points out that the amicable negotiations that resulted in an agreement for Freedom could pave the way for Quebecor to drop legal action the company had taken by claiming Rogers was in an agreement signed for the creation was closed “artificially caused a dead end”. a joint 4G LTE wireless network in Quebec and the Ottawa region.

They are now 10 out of 12 analysts recommending buying Quebecor’s action.

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