Shaw shares trading well below Rogers takeover price amid regulatory concerns

Shaw shares trading well below Rogers takeover price amid regulatory concerns

Shaw Communications Inc. Class B shares are trading well below the $40.50-per-share takeover offer made by Rogers Communications Inc. on Monday, in a sign that investors are concerned that regulatory scrutiny could get in the way of the deal.

In early afternoon trading, Shaw Class B shares traded at about $33 in Toronto – up about 38 per cent for the day but $7.50 short of the offer price. However, the Shaw Class A shares, largely owned by the Shaw family, who have agreed to the deal, were trading around $38.50. Rogers Class B shares were up more than 2 per cent to about $61.

“I would say that the Canadian regulator has been even more aggressive than the U.S., in terms of inciting competition,” said Ryan Bushell, president and portfolio manager at Toronto-based Newhaven Asset Management, which owns Shaw shares. Mr. Bushell added that there could be political concerns hanging over the proposed deal as well: “No one looks badly upon a government that seems to beat up on the telecom companies,” he said.

Tim Casey, an analyst at BMO Nesbitt Burns, noted that the deal will shrink the number of wireless players from four to three in Ontario, Alberta and British Columbia, three provinces that account for more than two-thirds of the Canadian population.

“As to industry implications, we think consolidation in the sector would be a net positive for other wireless operators. However, that assumes the transaction is approved in its current form, which is no sure thing given the longstanding regulatory conditions that have encouraged competition in the sector,” Mr. Casey said in a note.

The deal would add the Western Canadian operations of Calgary-based Shaw, currently Canada’s fourth largest wireless player, to Rogers’ Toronto-based sprawling telecom operations.

Joe Natale, Rogers’ chief executive officer, expects that the combination of the two companies will lower prices and increase high-speed internet connectivity in rural communities. The deal also comes with the promise to add 3,000 new jobs in Western Canada, in a clear attempt to appeal to regulators.

Investors aren’t so sure, though. Mr. Bushell believes that Cogeco Inc. offers an instructive example of how this sort of deal can play out in markets that are unsure about feasibility.

Rogers teamed up with Altice USA Inc. last year in an unsolicited bid for Cogeco that initially valued the shares of the Montreal-based cable and telecom company at more than $106 per share. Yet despite rallying 17 per cent on the day that the deal was announced in September, the price of the stock barely cleared $92 at the end of the trading day. It traded close to $98 on Monday.

Mr. Bushell expects that Shaw’s share price will grind up toward $40 over the next couple of months, but he has no plans to add to his position. Indeed, the risk that the deal could fall apart could push him toward rotating out of his Shaw position if the stock continues to rise and into another telecom stock, such as BCE Inc. or Telus Corp.

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Published at Mon, 15 Mar 2021 17:45:03 +0000