Rogers and Shaw said they have reached a deal to sell Shaw’s wireless business Freedom Mobile to Quebecor for $2.85 billion.
The companies said in a statement late Friday evening that the agreement to sell Shaw’s wireless business should address concerns about competition in the cellular market raised by Canada’s Competition Bureau as well as the federal government and pave the way for their larger $26-billion merger deal to close.
The competition watchdog launched a legal fight against the transaction in early May and later that month, the companies agreed to an injunction that prevented them from closing the deal unless they reached a settlement with the bureau or until the Competition Tribunal heard the court case.
Now, the companies hope the agreement with Quebecor will stave off the legal fight by convincing Ottawa that it can approve the deal without killing off a challenger to the Big Three (Rogers, Bell and Telus) in Ontario, British Columbia and Alberta, where Freedom Mobile operates.
“Our agreement with Quebecor to divest Freedom is a critical step toward completing our proposed merger with Shaw,” said Rogers CEO Tony Staffieri. “We strongly believe the divestiture will meet the Government of Canada’s objective of a strong and sustainable fourth wireless services provider.”
For Quebecor, it could be the opportunity to finally expand its own wireless business outside of Quebec, an ambition the company has harbored in the past but already abandoned once.
“This is a turning point for the Canadian wireless market,” said Quebecor CEO Pierre Karl Péladeau, “Quebecor’s Vidéotron subsidiary is the strong 4th player who, coupled with Freedom’s solid footprint in Ontario and Western Canada, can deliver concrete benefits for all Canadians. ”
He said Quebecor would bring his experience in the Quebec market and its “financial strength” to bear for the benefit of consumers.
The Freedom divestiture is conditional on regulatory approvals, including from the Competition Bureau and the federal department of Innovation. The companies said it would close “substantially concurrently with closing of the Rogers-Shaw transaction.”
Rogers wants to acquire Shaw’s cable networks, which would give it more than four million additional television, internet and landline telephone customers as well as valuable fibre-optic networks that could help it build 5G wireless service.
But the bureau has said the loss of Shaw’s wireless business would lead to a substantial reduction in competition in the cellular market.
The bureau said in court filings in early May that Rogers proposed selling off some of Shaw’s wireless assets but the proposals didn’t go far enough to protect competition.
Rogers and Shaw said in their own court filings earlier this month that the bureau failed to account for “significant efficiencies” the transaction would deliver. They argued the combined company would save money and have more to invest in networks, which they would argue would be a win for consumers.
In its own response on Friday afternoon before the Quebecor deal was announced, the Competition Bureau said the efficiencies claimed by the companies are “speculative, unproven and unlikely to be achieved in whole or in part or are grossly exaggerated” and not enough to save the merger.
The bureau said the deal will “harm millions of Canadian consumers in Ontario, Alberta and British Columbia through higher prices, lower quality services, and lost innovation.”
If the bureau’s case against the merger goes ahead, the Competition Tribunal will hear it during a four to five-week hearing beginning in November, with an extra two days for closing arguments in December, according to a scheduling order published on Friday.
Rogers and Shaw first announced the deal in March, 2021. The agreement would see Shaw shareholders paid $40.50 per share while a Shaw family trust would receive 23.6 million Rogers shares and become one of the largest shareholders of the combined company.
In March of this year, the Canadian Radio-television and Telecommunications Commission approved Rogers’ acquisition of Shaw’s broadcasting services, including 16 cable services based in Western Canada and a national satellite service.
The deal must still be approved by the federal department of Innovation, Science and Economic Development.
In early May, the companies extended the deadline for closing the deal to July 31.
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