The announcement of an agreement with Quebecor for Freedom Mobile seems to greatly reassure the markets. Investors now seem much more confident that the merger of Shaw and Rogers will be approved as evidenced by the stock market reaction recorded during the first session of the week.
Posted at 4:19 p.m.
The action of Rogers Communications gained 6% on Monday, that of Shaw 8%, while that of Quebecor appreciated by 6%.
Quebecor, Rogers and Shaw announced Friday evening an agreement whereby Quebecor agrees to purchase Freedom Mobile, a wireless service company with more than one million customers in Ontario, Alberta and British Columbia, for $2.85 billion. British.
Rogers and Shaw agreed earlier this spring to divest Freedom Mobile to convince regulators to approve Rogers’ acquisition of Shaw, a deal valued at $26 billion (including debt).
The Competition Bureau, however, reiterated last week 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.
The deal with Quebecor for Freedom Mobile appears to allay government fears of a viable fourth wireless player in the country, said BMO analyst Tim Casey.
“How the Competition Bureau will react is unclear, however,” he adds. This expert expects meetings with the Competition Bureau to be organized on an accelerated basis. If the authorities decide to approve the transaction, Tim Casey estimates that the Shaw-Rogers merger could close in 10 days.
The timelines may be too tight to meet the July 31 deadline for the deal set by Rogers and Shaw, but Tim Casey thinks the two companies would agree to push the deadline another time.
Encouraged by the agreement reached with Quebecor for Freedom, analyst Aravinda Galappatthige at Canaccord has changed her tune and now suggests that her clients buy Rogers and Shaw shares.
“It (the agreement with Quebecor) is ultimately positive for Rogers since everything indicates that it allows Rogers to cross the finish line with regard to the purchase of Shaw”, he underlines in a note written sunday.
Aravinda Galappatthige adds, however, that the cost becomes higher than expected for Rogers given that the average valuation of Freedom advertised in the media was around 3.75 billion. It also clarifies that Freedom is being sold to the “least desirable” acquirer for Rogers.
However, this expert believes that due to the weakness in Rogers and Shaw’s stock this spring, the stocks of these two companies are now attractive since, in his opinion, the odds of the Rogers and Shaw merger being approved increase. now over 95%.
Regarding Quebecor, Aravinda Galappatthige is divided. “On the one hand, the opportunity to develop the fourth largest wireless player in the country comes with significant growth potential. “With good execution, the advantage is significant for Quebecor. »
On the other side, he says, questions are being raised surrounding the prospect of longer-term success due to possible vulnerability following retaliation in the form of promotional activities from competitors in the Quebec market while Quebecor tries to develop Freedom Mobile with a lack of experience outside Quebec and a heavier financial balance sheet.
Although it is still too early to determine the long-term impact of the transaction with Quebecor, since it depends in particular on the strategy of the owner of Videotron and its execution, Aravinda Galappatthige estimates that the result is ultimately moderate negative for Rogers, BCE and Telus. These three telecom giants, according to him, would certainly have preferred another buyer for Freedom Mobile since Quebecor is undoubtedly the strongest competitor they can compete with.
“That said, it’s still a long journey for Quebecor,” says Aravinda Galappatthige.