Rogers to buy Shaw for $26 billion — but will regulators agree?

There are days you think Canada’s media and telecom industries are about as converged as they can be. And then another megatransaction gets announced that you think couldn’t possibly be approved by the government. And then it is.

Transactions like Bell buying Astral Media, Bell buying MTS, Rogers buying Mobilicity, Postmedia buying Sun Media, and all the other transactions that brought us to this point.

So the news that Shaw has agreed to a $26-billion sale to Rogers maybe shouldn’t come as quite a shock. But as the government professes to be pro-consumer, particularly when it comes to wireless services, can we really expect this deal to be approved?

Here are the stumbling blocks the companies will have to get over:

  1. Freedom Mobile. In Ontario, Alberta and B.C., Freedom is the fourth large wireless carrier, the last surviving one from that era of increased competition after Mobilicity and Public Mobile were scooped up by the big three. Rogers, which is already Canada’s largest mobile provider, apparently believes it can just keep Freedom as part of the deal, with nothing more than a promise that it won’t raise prices for three years. If the federal government is to be taken seriously on wireless competition, it can’t possibly let that stand. It could force Rogers to sell Freedom to some other party (Quebecor? Xplornet? Cogeco? Some random rich guy?), or it could come to some agreement where Rogers sheds just enough Freedom customers to another party, like Bell did when it bought MTS.
  2. Corus. Shaw and Corus are separate companies, with separate boards of directors and different shareholders, but both are controlled by the Shaw family. The CRTC treats them as if they’re the same for competition reasons. The issue here is that, as part of the transaction, the Shaw family gets two seats on the Rogers board. That doesn’t give them control of Rogers, but does it present enough of a competition concern to warrant increased scrutiny?
  3. Cable and satellite. Because Shaw and Rogers have essentially split the country geographically, with Shaw serving western Canada and Rogers serving eastern Canada, there’s not much overlap in terms of wired coverage to deal with. But these are still big companies. Shaw has 1.4 million cable TV subscribers and more than 600,000 satellite TV subscribers, making almost $4 billion in annual revenue on TV services alone. Add that to Rogers’s 1.5 million TV subscribers and $3.5 billion revenue, and you get a company 30% larger than Bell on that front. That’s a change in dynamic in bargaining position when, say, negotiating carriage contracts with TV services. There’s also the fact that if Rogers buys Shaw’s satellite service, that’s one less TV service option for subscribers in Rogers territory. They go from having to choose between Rogers, Bell Fibe/satellite and Shaw Direct to having to choose between Rogers and Bell alone.
  4. Sheer size. Rogers has $15 billion in annual revenue. Shaw has $5 billion. Combined, they still fall short of Bell’s $24 billion, but not by much. No doubt Rogers will use the need to compete against Bell as an argument for approving the transaction, because the only way to fight ownership consolidation is more ownership consolidation.
  5. Jobs. Rogers has promised to create 3,000 “net new jobs” in western Canada as part of the deal. But it also says “synergies are expected to exceed $1 billion annually within two years of closing.” I’m curious what synergies can be achieved without cutting any jobs.

Mobile service seems like the only potential dealbreaker here, unless there are some minor assets that compete directly that would also need to be divested. Rogers would probably be fine ditching Freedom if that was a condition of approval.

Will political and regulatory forces accept such a deal? We’ll have to see. Recent experience suggests they probably will, and companies don’t go through this kind of trouble if they don’t think a deal can succeed. (At least that’s what I’d like to say, but Rogers’ proposed purchase of Cogeco fell flat, so…)

10 thoughts on “Rogers to buy Shaw for $26 billion — but will regulators agree?

  1. Lorne

    I don’t think this transaction should be approved. There is already not enough competition in the industry, this would decrease it even more.

    Reply
  2. Nigel Spencer

    The regulators also promised nearly 20 years ago to get the volume of commercials turned down, but they only got louder, so I don’t expect the government to do anything but ask Rogers if it wants a side order of fried consumer with that.

    Reply
  3. Dilbert

    This is a deal that could be seen coming from miles away, or at least from years away – 2016 to be specific. The moves have been made already to remove as much of the broadcast properties out of the Shaw tent and into the Corus tent. That has left Shaw as cable, wireless, and DBS company, and nothing more (aside from an ownership stake in CPAC). This whole situation was well thought out a long time ago.

    I think they learned well from the whole Bell and Astral situation. They have removed most of the contentious broadcast and TV network items into Corus. With little or no overlap in cable TV, the only asset in the deal that is really debatable is the Freedom Mobile thing. It’s a pretty good strategy, there is only one real issue to be dealt with at least on the surface.

    However, the CRTC may feel they have gotten taken for a ride. They let the Shaw Media stuff slide over to Corus without any real cost, no tangible benefits, and so on. I can imagine them wanting to extract their pound of flesh and a little more this time around. I am thinking that this may also be a potential trigger issue that forces the CRTC to look at the greater issue of ownership concentration.

    It’s even more important as we move towards 5G services. 5G is in many ways a potential replacement for wired internet services. It’s a situation where there is potential for a third option in the phone company / cable company monopoly for these services. You can imagine that companies such as Rogers and Bell have little interest in moving to technology that would disrupt their existing business models. Consolidating mobile services down to few players only moves to reinforce that desire to stand still rather than move forward.

    My guess: The CRTC will say no. They will possibly suggest that it would work if the wireless and DBS businesses are kept and the monies gained from the sale of the cable companies be used to advance it as a stand alone company.

    Reply
  4. gds

    You will probably see them forced to sell their stake in Cogeco.
    Potential opportunity for Videotron to pickup Freedom, but unlikely

    Reply
  5. Eamon Hoey

    Approval will not be denied. The Shaw Rogers deal will create a broad boulevard of opportunity for a Bell Telus combination. Regulators will demand nothing more than weak cosmetic changes around the edges of the deal. CDN regulators take daily walks with the regulated. The deal is in the oven. The consumer roast will soon be on the table ready for the carving.

    Reply
  6. Jack Nathanson

    Corus, which is affiliated with Shaw, owns Global Television. Rogers owns City-TV. If Rogers buys Shaw, that might mean that they will own or control both the Global Television and City-TV stations in many markets.

    If I remember correctly, in the late 1990’s, Canwest-Global purchased WIC Television, which at that time owned CFCF-12 in Montreal. As Canwest-Global already owned Global Montreal, that meant that it now owned two English-language stations in the same market. The regulators said that Canwest-Global had to divest itself of one of the two stations. CFCF-12 was ultimately sold to CTV/Bell, which dismembered the station and converted it into CTV Montreal. The result was that Montreal no longer had a locally-owned-and-controlled English-language television station.

    The situation with Rogers and Shaw today sounds very similar.

    Reply
    1. Fagstein Post author

      Corus, which is affiliated with Shaw, owns Global Television. Rogers owns City-TV. If Rogers buys Shaw, that might mean that they will own or control both the Global Television and City-TV stations in many markets.

      They won’t. If Rogers buys Shaw, Shaw will no longer be affiliated with Corus. Whether this acquisition might present conflicts of interest for the Shaw family is another matter, but the Shaw family doesn’t control Rogers and won’t after this deal.

      Reply
  7. S. Santos

    What will happen to Cours stations like Global TV, their specialty channels and radio stations like Jump and Boom Ottawa, Big FM and Fresh FM Kingston? Will the Corus radio and TV media companies be divested to Stingray, Telus or Evanov? Just wondering will Rogers also own Corus if it gets approved.

    Reply
    1. Fagstein Post author

      What will happen to Cours stations like Global TV, their specialty channels and radio stations like Jump and Boom Ottawa, Big FM and Fresh FM Kingston?

      Nothing. Corus is a separate company and is not part of this deal.

      Reply

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