Rogers seeks to buy Shaw for $20.4-billion in deal that would transform Canadian telecom market – The Globe and Mail

A sign is pictured on top of the Rogers Communications Inc. building on the day of their annual general meeting for shareholders in Toronto, April 21, 2015.

Mark Blinch/Reuters

Rogers Communications Inc. plans to acquire Western Canadian rival Shaw Communications Inc. for $20.4-billion in a deal that unites two family dynasties in a nationwide battle for customers against BCE Inc. and Telus Corp.

Shaw chief executive Brad Shaw decided his Calgary-based company could no longer go it alone in an increasingly competitive telecom market and needed to combine forces with Rogers on a planned $6.5-billion network expansion in Western Canada.

“5G and our urban and rural networks are critical to our customers, and we can move more quickly together than either of us could on our own,” he said in an interview with The Globe and Mail.

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Toronto-based Rogers is offering $40.50 per share for Shaw, a 69-per-cent premium to where the Calgary-based company’s stock recently traded. Rogers received an irrevocable commitment to the bid from the Shaw family, which holds 79 per cent of the votes at a business founded by cable entrepreneur JR Shaw, Brad Shaw’s father.

Sale of telecom empire has ‘generational impact’ on Shaw family

The takeover requires shareholder and regulatory approval and is expected to receive intense scrutiny from the federal government as it would eliminate Canada’s fourth-largest wireless player. Both the federal Liberals and Conservatives push the idea of multiple competitors as a way to bring down cellphone bills. In the past, analysts have said if Rogers and Shaw merged, they would need to sell a portion of the wireless business to win over regulators.

Brad Shaw, chief executive officer of Shaw Communications Inc. is photographed at the company headquarters in Calgary on Thursday, November 17 2016.

Chris Bolin Photography Inc/The Globe and Mail

Rogers chief executive Joe Natale said in an interview the two companies plan to tell regulators and politicians that combining their operations will increase efficiency, lower prices and increase connectivity, “bridging the digital divide” between cities and underserved rural and Indigenous customers. “This combination is the right thing for Canada and consumers,” he said.

Rogers and Shaw made a series of commitments to Western Canada in announcing the deal, including a promise to add 3,000 new jobs in Alberta, B.C., Saskatchewan and Manitoba, and to maintain a significant regional head office in Calgary. If successful, Rogers plans to spend $2.5-billion rolling out its 5G network in the four provinces, and set up a $1-billion fund to provide high speed internet to rural, remote and Indigenous communities. The company earmarked an additional $3-billion for upgrading networks in the West.

The seeds for the takeover were sown last summer. Mr. Natale had dinner with Mr. Shaw in Calgary while he was in Alberta to review Rogers’ operations; the two have known each other for years. Over the course of the meal, the two CEOs talked in general terms about joining forces. Mr. Shaw followed up with a phone call to Mr. Natale early this year, and the two agreed on specifics during a recent meeting at a Calgary airport hangar, negotiating across what Shaw’s CEO described as “an appropriate social distance.”

Rogers Communications CEO Joe Natale speaks to shareholders during the Rogers annual general meeting in Toronto on Friday, April 20, 2018.

Nathan Denette/The Canadian Press

Bankers called the transaction “Project Scotch,” with Shaw codenamed “scotch” in all documents, to mask its identity, while Rogers was called “rum.” With Shaw’s debt included, the total value of the acquisition is $26.2-billion, among the largest takeovers ever staged by a Canadian company. The offer values the Shaw family’s stake at $2.3-billion, and they will take 60 per cent of the purchase in Rogers non-voting shares and $920-million in cash, making the clan the second largest shareholder, after the Rogers family. Rogers will fund the acquisition with cash on hand and by borrowing.

Mr. Shaw will join the Rogers board after the deal closes, and the Shaw family will have the right to name a second Rogers director. Combining the two companies is expected to result in $1-billion of annual cost savings for Rogers. If regulators and shareholders sign off, the two companies said the deal is expected to close in the first half of 2022. Rogers is buying Shaw at a multiple of 10.7 times the company’s forecast earnings before interests, taxes, depreciation and amortization, or EBITDA.

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Both Rogers and Shaw were founded in the 1960s and built their businesses by acquiring a series of family-owned cable companies. Both saw their founders pass away relatively recently: Ted Rogers died in 2008 and JR Shaw passed away last March at age 85. The two CEOs said their common experience, and years of rivalry that included numerous practical jokes, paved the way for a friendly takeover.

The Rogers logo is photographed in Toronto on Monday, September 30, 2019.

Tijana Martin/The Canadian Press

Mr. Shaw, who took the reins in 2010, said he had numerous conversations about the future of the company with his late father and his late brother, former CEO Jim Shaw, who died in 2018 at the age of 60. “We constantly discussed where the company is going,” Mr. Shaw said. “Some of those conversations were easier than others.”

In the Shaw offices, difficult conversations were held ahead of Mr. Shaw’s decision to sell the company’s media assets, which included the Global Television Network, to Corus Entertainment in 2016 for $2.65-billion, and his move to sell its data-centre business in 2017 for $2.3-billion. In hindsight, both moves paid off. Shaw used the money it raised to buy and build out its Freedom Mobile Inc. and Shaw Mobile cellphone businesses that are now its fastest growing platforms and attractive assets for Rogers.

Mr. Shaw said his father understood the logic of potentially selling the company. He said the family wants its legacy to be as builders of the leading Canadian telecom platform, and combining forces with Rogers is the best way to achieve that goal. On the other side of the table, Rogers has always coveted a national platform to better compete with BCE. Mr. Natale said that at a Rogers board meeting last week to approve the transaction, long-time director and former chair Alan Horn said, “Somewhere, Ted is smiling, and saying ‘Now, will you just get on with it?’”

Last year, Rogers and U.S. telecom company Altice USA Inc. made an unsuccessful $10.3-billion bid for Quebec-based rival Cogeco Inc. Rogers continues to be the largest single shareholder in Cogeco and subsidiary Cogeco Communications Inc. Mr. Natale said the company’s friendly offer for Shaw has no bearing on its Cogeco investments.

Shaw got its start in the cable industry in Edmonton, and only got into the wireless business in 2016 when it purchased Toronto startup carrier Wind Mobile Corp., now called Freedom Mobile, for $1.6-billion. Since then, Shaw has invested billions in building out its wireless network. Last summer, the company launched a new Shaw Mobile service, available as part of a bundle to its internet customers in Western Canada. The aim was to win back internet subscribers in Alberta and British Columbia from Vancouver-based rival Telus, which has been eating away at Shaw’s market share.

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In negotiating the deal, Rogers hired BofA Securities and Barclays as its financial advisers and Goodmans LLP as law firm. TD Securities and law firm Davies Ward Phillips & Vineberg LLP advised Shaw. Shaw also struck a special committee of its board, which was advised by CIBC World Markets and law firm Burney Duckworth & Palmer LLP. The Shaw family’s trust used Dentons Canada LLP as their lawyers, while Torys LLP advised the Rogers family trust.

With a report from Alexandra Posadzki

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