Purchase of Shaw by Rogers | The markets show more confidence

The announcement of an agreement with Quebecor for Freedom Mobile appears to have calmed markets considerably. Investors now appear to have much less doubt that the Shaw-Rogers merger will be approved, as reflected in the stock market reaction recorded during the first session of the week.

Posted at 4:19pm

Richard Dufour

Richard Dufour
The press

Rogers Communications’ action was up 6% on Monday, Shaw’s was up 8%, while Quebecor’s was up 6%.

Quebecor, Rogers and Shaw announced an agreement Friday night under which Quebecor would agree to buy Freedom Mobile, a wireless company with 1.7 million customers in Ontario, Alberta and British Columbia, for $2.85 billion.

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

However, the competition bureau reiterated its opposition to Shaw’s marriage to Rogers last week, saying selling Freedom Mobile was not an effective solution and would weaken Freedom as a competitor.

The Quebecor for Freedom Mobile deal appears to allay government fears of a viable fourth wireless carrier in the country, BMO analyst Tim Casey said.

“However, how the competition office will react is unclear,” he adds. This expert expects meetings with the competition office to be organized in an expedited manner. If authorities decide to approve the transaction, Tim Casey estimates the Shaw-Rogers merger could be completed in 10 days.

The deadlines may be too tight to meet the July 31 deadline set by Rogers and Shaw, but Tim Casey believes the two companies would be willing to push the deadline yet again.

Encouraged by the deal with Quebecor for Freedom, Canaccord analyst Aravinda Galappatthige has changed her mind and is now suggesting her clients buy Rogers and Shaw shares.

“It’s finally positive for Rogers [l’entente avec Québecor] since everything indicates that it will allow Rogers to cross the finish line in relation to the purchase of Shaw, “he points out in a note written on Sunday.

However, Aravinda Galappatthige adds that Rogers’ costs will be higher than expected given Freedom’s media-released average value was around $3.75 billion. It also clarifies that Freedom will be sold to the “least desirable” acquirer for Rogers.

However, this expert believes that due to the weakness in Rogers and Shaw stocks this spring, the shares of these two companies are now attractive as he believes the odds of Rogers and Shaw’s merger approval rising to over 95%.

On Quebecor, Aravinda Galappatthige is divided. “On the one hand, the opportunity to develop the country’s fourth-largest wireless player offers significant growth potential. If executed well, the advantage for Quebecor is significant. »

On the other hand, he says, questions are being raised about the prospect of longer-term success due to potential vulnerability as a result of retaliation in the form of promotional activities by competitors in the Quebec market as Quebecor seeks to develop Freedom Mobile with a lack of experience outside of Quebec and a heavier financial record.

While it is too early to determine the long-term implications of the Quebecor transaction as it depends particularly on Videotron’s owner’s strategy and execution, Aravinda Galappatthige anticipates that the ultimate outcome will be moderately negative. BCE and Telus. In his opinion, these three telecom giants would certainly have preferred a different buyer for Freedom Mobile, since Quebecor is undoubtedly the strongest competitor with which to compete.

“Nevertheless, there is still a long way to go for Quebecor,” says Aravinda Galappatthige.

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