5G's Promise? $80 Billion in Competition-Killing Megadeals
(Bloomberg Opinion) -- A formidable low-cost wireless carrier was threatening a competitor’s subscriber growth, so they merged. If this sounds like last year’s controversial $58 billion deal between T-Mobile US Inc. and Sprint Corp. in the U.S., look further north. On Monday, Rogers Communications Inc. agreed to acquire its Western Canadian rival Shaw Communications Inc. for C$26 billion ($20.9 billion) including debt, the latest megadeal in North America to punctuate the global race to 5G and raise eyebrows from both consumers and regulators. Investors won’t be complaining, though.
“As virus pressure subsides, Shaw may remain a threat to postpaid growth,” Bloomberg Intelligence analyst John Butler wrote in a Dec. 10 report. Likewise, a takeover by Rogers would provide the biggest upside to Shaw’s stock price, Vince Valentini, an analyst for TD Securities, wrote in November. Those predictions proved accurate: Rogers is offering Shaw shareholders C$40.50 a share in cash, 77% higher than the stock’s average closing price over the past 20 days. The average share-price estimate for Shaw was only C$27.58 before the deal was announced, according to data compiled by Bloomberg.
Shaw is primarily a provider of broadband internet, pay-TV and phone service in British Columbia and Alberta, with those services supplying more than three-quarters of its C$5.4 billion of revenue in the 12 months through November. The company acquired Freedom Mobile five years ago and launched the Shaw Mobile brand last summer during the Covid-19 pandemic to compete in wireless with attractive bundling options. (Its broadband customers qualified for a free mobile voice and text-messaging plan with Wi-Fi enabled, or the ability to purchase one gigabyte of data for C$10 — rates unheard of in the U.S. wireless market.)
While Shaw is still in a distant fourth place, the transaction will hand Rogers 1.8 million wireless subscribers in a part of the country where it has a smaller presence (Rogers already has a 31% share of the Canadian market). It will also gain about 5.3 million cable and satellite customers, as well as more spectrum for 5G, the faster next generation of wireless networks. In the absence of a deal, Rogers may have had to reduce prices and sacrifice profits to prevent users from switching to Shaw. Rogers said the result of their combination will be “more choice” for consumers, though it’s unclear how.
The deal announcement reads like a celebration for Canadian consumers, highlighting C$2.5 billion of 5G network investments to help close the country’s digital divide and a new C$1 billion Rogers Rural and Indigenous Connectivity Fund. Rogers also promises not to raise prices on Freedom Mobile customers for at least three years and to create 3,000 jobs. Still, Twitter was littered with posts from unhappy residents worried their bills will go up. Here are some of the more safe-for-work examples:
The deal will bring 5G service to Western Canada “more quickly than either company could achieve on its own,” Rogers’s statement read. It’s the same rationale T-Mobile and Sprint used to justify shrinking the U.S. market from four to three main competitors. T-Mobile now has the most enviable spectrum position in the industry, forcing Verizon Communications Inc. and AT&T Inc. to take on billions in debt to catch up. T-Mobile has also cut jobs to generate merger synergies.
The 5G argument worked wonders on the U.S. Federal Communications Commission and Justice Department. It’s unclear whether Canada’s regulators will be as beguiled.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.
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