CA - Rogers And Shaw Communications Deal Moves Forward After Almost 2 Years

Summary

• The Rogers-Shaw deal was a contentious one, where regulators extracted concessions.
• The companies pushed it through after nearly 2 years.
• Remaining obstacles appear very unlikely to stand in the way.
• The deal could close within a month.
• Upside is relatively large given the likely time until closing and the remaining risks.

Pre-market there is news that a very long-running deal between Rogers ( RCI ) and Shaw Communications ( SJR ) looks like it is finally being allowed to close. This deal was first announced in March 2021. The Canadian antitrust regulator did not like the deal, and the companies had to make concessions. I've discussed this idea earlier today here .

The shares are now trading up quite a bit towards $29.10 on the NYSE pre-market when I last looked. SJR is being acquired at CAD $40.50 per share. At today's rate, that translates into $29.89. That's 2.71% upside to the deal price. Unfortunately, I don't seem able to get any shares even at higher prices reflecting a much smaller spread.

I'm still flagging this because it could be an interesting opportunity for today given the (likely) limited amount of time until closing. Many people have likely given up on this deal because it has been ongoing for a long time.

From the PR, I understand the outside date has been extended to January 31, 2023:

In addition, Rogers, Shaw and the Shaw Family Living Trust have agreed to extend the outside date of the Rogers-Shaw Transaction to January 31, 2023. Under the terms of the agreement with Quebecor, the outside date for the acquisition of Freedom Mobile by Quebecor is automatically extended to January 31, 2023.

The only outstanding regulatory approval is this one:

As a result of the Tribunal decision, the only required regulatory approval remaining under the Arrangement Agreement among Rogers and Shaw and the Freedom Mobile Share Purchase Agreement among Rogers, Shaw and Quebecor is the approval from the Minister of Innovation, Science and Industry for the transfer of Freedom Mobile's wireless spectrum licenses to Videotron. The parties will continue to work constructively with Innovation, Science and Economic Development Canada to obtain this final approval.

I don't think that will be an insurmountable obstacle with the divestiture of Freedom to Videotron. In fact, Champagne, Minister of Innovation, Science and Industry, made this statement specifically pertaining to this scenario:

"Since the original request was tabled, Shaw has proposed to sell its wireless division-Freedom Mobile-to Vidéotron. This would require my approval to transfer the spectrum licences.

"As we look forward, I want to make very clear the lens through which I will consider this proposed spectrum transfer.

"First, I am giving notice that any new wireless licences acquired by Vidéotron would need to remain in its possession for at least 10 years. A new service provider needs to be in it for the long run.

" Second, I would expect to see prices for wireless services in Ontario and Western Canada comparable to what Vidéotron is currently offering in Quebec, which are today on average 20 per cent lower than in the rest of Canada."

I think the companies will overcome these concerns. This deal should now be a very high probability of closing and sooner rather than later. The spread is still relatively wide, with 2.71% upside. I can see it closing before the extended date, although it is always possible something unexpected will happen. 2.71% would translate into a very high annualized return and I will not be surprised if the market keeps bidding this deal up. With around 1.3%+ of upside left, I would still view this deal as quite attractive given the timeframe and remaining risks involved. The downside of a deal break (which is not my expectation) would likely be quite large. I would expect it to fall towards CAD $30 or ~$22.

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