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Roger Communications RCI and Shaw Communications SJR recently announced an agreement to sell the latter’s wireless carrier Freedom Mobile Inc. to Quebecor Inc.
Under the terms of the divestiture agreement, Quebecor will be buying Freedom at an enterprise value of C$2.85 billion on a cash free debt-free basis.
The acquisition will provide Quebecor access to all of Freedom’s branded customers, wireless and internet along with its retail locations, spectrum and infrastructure.
Rogers initiated the deal in the hope of attaining the approval of federal regulators, who recently reiterated that it is opposed to the proposed takeover of Shaw Communications in a $26-billion merger deal.
Rogers Communication, Inc. Price and Consensus
Rogers Communication, Inc. price-consensus-chart | Rogers Communication, Inc. Quote
Freedom Mobile Sale To Help Close The Rogers-Shaw Merger
In March 2021, Rogers and Shaw reached an agreement for Rogers to acquire all of Shaw’s shares in a $26 billion deal, inclusive of approximately $6 billion of Shaw’s debt.
The planned merger had received approval from Shaw’s shareholders and the Canadian Radio-television and Telecommunications Commission. ‘
But the approval from the Competition Bureau and Innovation, Science and Economic Development Canada (ISED) is still pending due to concerns about reduced competition in Canada’s wireless landscape.
Notably, Bell Canada Communications BCE, the telecommunications giant, also offered to acquire Shaw, the smaller rival in the Canadian telecommunications market, before the Rogers deal was finalized.
Rogers initially proposed to offer $35 per share, while Bell offered $37 per share. Later, Rogers increased its offer to $40.50 per shares, which Bell matched. However, due to certain regulatory conditions which Shaw could not accept, the deal went to Rogers instead of Bell.
As the Rogers-Shaw merger was announced, Competition Bureau pointed out that Bell, Telus TU and Rogers serve approximately 87% of the Canadian Mobile subscribers. The Rogers-Shaw merger will remove Shaw from the competitive landscape, ultimately harming consumer choice in the addressable market.
As a result, Rogers had agreed to sell Shaw’s mobile network assets, Freedom Mobile.
After the announcement, Globalive, a Canadian communications and investment company, signed a contingent network and spectrum sharing agreement with Telus to reinforce its bid to purchase Freedom Mobile.
The Freedom assets sale also attracted the interest of Xplorenet Communications, a New-York based rural broadband provider, and Quebecor.
Roger’s move to sell Freedom mobile assets was insufficient to convince the Commissioner of Competition. The board filed a bid to stop the Shaw-Roger merger on anti-competitive grounds.
Rogers and Shaw, at the time, postponed the merger from Jun 13 to Jul 31, 2022.
The Freedom transaction, among other things, is dependent on the clearance under the Competition Act and ISED approval. It will be closed simultaneously with the closing of the Rogers-Shaw merger.
The merger, once completed, will enable Rogers with the scale, capabilities and assets to deliver unprecedented wireline and wireless broadband, innovation and growth to Canadian consumers and businesses. As a part of the transaction, the companies will be investing $2.5 billion in 5G networks across Western Canada over the next five years.
Rogers, which currently has a Zacks Rank #3 (Hold), has tumbled 3.4 % compared with the Zacks Cable Television industry’s decline of 26.1% and the Zacks Consumer Discretionary sector’s fall of 35.7% year to date.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here