The first reactions to the agreement surrounding the purchase of Freedom Mobile by Quebecor are favorable to the Quebec telecommunications conglomerate. National Bank Financial is so enthusiastic that it changes its recommendation and henceforth suggests the purchase of the Videotron owner’s share.
Posted at 6:00 a.m.
Quebecor, Rogers and Shaw announced Friday evening an agreement under which Quebecor agrees to pay 2.85 billion for Freedom Mobile, a wireless services company active in Ontario, Alberta and British Columbia. The agreement would add approximately 1.3 million subscribers to Quebecor’s customer base.
Not only is the transaction announced at a reasonable price, argues analyst Adam Shine of National Bank Financial, but it also requires neither a share issue nor a financial partner to materialize.
This expert points out in a note written on Sunday that he expects Freedom to adopt the name of Fizz, Videotron’s low-cost cell phone and internet provider, and that Quebecor offers wireless services and a bundle (internet and wireless). -wire) in Ontario, Alberta and British Columbia through an agreement to resell Rogers internet services purchased wholesale through an agreement.
Rogers and Shaw agreed to sell Freedom Mobile this spring to convince regulators to approve Rogers’ acquisition of Shaw, a deal valued at $26 billion (including debt).
Adam Shine says he disagrees with the Competition Bureau, which last week reiterated its opposition to Shaw’s marriage to Rogers, saying selling Freedom Mobile would not be an effective solution and would weaken Freedom as a competitor.
His colleague Jérôme Dubreuil, at Desjardins Securities, adds for his part that the Freedom agreement allows Quebecor to “harvest ripe fruit” and broaden its horizons at a “reasonable” price while increasing the likelihood of achieving the merger of Rogers with Shaw.
Quebecor’s track record, balance sheet, expertise and assets are all elements that make it increasingly difficult for the regulator to assert that the competitive environment will be substantially affected by a merger of Rogers with Shaw.
Jerome Dubreuil
“It is difficult to predict the next action taken by the Competition Bureau, but the regulator is encouraged to settle the file quickly so that Quebecor can compete effectively as soon as possible,” he adds.
Positive reaction
This analyst also expects a positive reaction from investors on Monday. “Although the market had thus far seemed generally unfavorable to an acquisition of Freedom by Quebecor, the transaction made sense at a certain price. And at 2.85 billion, Quebecor is making a transaction at an attractive price, he says. He had previously valued Shaw’s wireless assets at more than $4 billion.
Jérôme Dubreuil specifies, however, that the leaders of Quebecor will have to provide more details surrounding the strategy and the financial expectations to reassure investors and allow the action of Quebecor to really reduce the valuation discount currently observed on the title.
The start-up of wireless activities outside Quebec entails, among other things, financial risks.
Jérôme Dubreuil believes in particular that Quebecor could slow the pace of its share buybacks and the growth of its dividend.
“Shaw has significantly slowed down its capital expenditures since the announcement of its merger with Rogers, and Quebecor will have some catching up to do in terms of wireless investments. He estimates that Quebecor will have to invest $200 million simply in catch-up expenses during the first three years following the transaction.
Jérôme Dubreuil also expects competitive intensity to increase – in other words, pressure on prices – in the wireless market once the merger is complete.
A settlement of the 850 million lawsuit brought last fall by Quebecor against Rogers is also not part of the agreement for Freedom Mobile. Adam Shine points out, however, that the friendly negotiations leading to an agreement for Freedom could pave the way for Quebecor to abandon the legal action that the company had launched by claiming that Rogers had “artificially caused an impasse” in an agreement concluded for create a common 4G LTE wireless network in Quebec and the Ottawa region.
They are now 10 analysts out of 12 to recommend the purchase of the action of Quebecor.