Investors show more confidence in the completion of the merger of Shaw and Rogers the day after the conditions imposed by Ottawa and immediately accepted by Quebecor in connection with this transaction in which Videotron’s parent company must participate.
Posted at 4:23 p.m.
Shaw’s stock jumped 7% on the Toronto Stock Exchange on Wednesday, while Rogers’ stock gained 6%.
The stock market appreciation of the day is more modest at Quebecor, but nevertheless 2.5%. The action of the Quebec conglomerate led by Pierre Karl Péladeau had fallen this month to its lowest level in 52 weeks, which had pushed the dividend yield to 5%.
PHOTO MARTIN TREMBLAY, PRESS ARCHIVES
Pierre Karl Péladeau, CEO of Quebecor
Shaw’s stock closed Wednesday’s session at $36.52, its highest level since the start of July. However, it is still far from the value promised by Rogers. Under the merger agreement valued at $26 billion (including $6 billion debt), Rogers is offering $40.50 per share to Shaw shareholders.
To make their merger plan acceptable, Rogers and Shaw had previously agreed to sell Shaw’s wireless subsidiary (Freedom Mobile) to Quebecor for $2.9 billion.
The conditions set out Tuesday evening by the federal Minister of Innovation, Science and Industry are seen as a way of exerting a form of pressure on the Commissioner of Competition.
Minister François-Philippe Champagne is asking for a long-term commitment from Videotron if Quebecor wishes to acquire new licenses. He also expects the prices of wireless services in Ontario and Western Canada to be comparable to those offered by Videotron in Quebec, which are, he points out, 20% lower, on average, than those in the rest of the country.
These requirements are also formulated as the mediation process involving the Commissioner of Competition, Rogers, Shaw and Quebecor begins Thursday and is due to continue Friday.
“The Minister’s statement indirectly places some pressure on the Commissioner of Competition to come to a negotiated agreement during the mediation,” argues analyst Aravinda Galapatthige of the firm Canaccord.
So far, it was increasingly clear that the prospect of successful mediation had drastically diminished. The question now is how much will the Minister’s comments impact the mediation?
Aravinda Galapatthige, analyst at Canaccord
His comrade Maher Yaghi, from Scotia, believes for his part that the minister’s remarks will act as a positive catalyst to bring the participants in the mediation closer together. “It is possible that the Minister’s demands will open the door to an agreement. And if the Commissioner of Competition does not approve the proposed merger, the Competition Tribunal should do so when the time comes. »
Quebecor management quickly announced Tuesday evening that it was committed to holding Freedom Mobile for at least 10 years and to lowering the price of mobile telephone services outside Quebec.
Aravinda Galapatthige considers that the reduction in the price of mobile telephony services is a difficult condition to interpret. Prices vary from region to region and even within a province, he points out. They are also affected by promotional campaigns as well as by the different packages offered. This analyst is therefore tempted to interpret this condition as a “general” commitment that the Minister wishes to obtain from Quebecor rather than a specific fee schedule.
Maher Yaghi estimates that the odds of seeing the deal go through now increase to 90%. He now recommends buying Shaw’s stock.
This expert thinks that Quebecor should land in the markets of Ontario, Alberta and British Columbia with two brands: Freedom and Fizz. Plus, he adds, with a potential ability to offer internet, the company could also sell products in bundles. “I don’t see why Quebecor couldn’t achieve a 15% wireless market share in these provinces given its experience in customer service and marketing. »
Even a sale of Freedom Mobile to Quebecor won’t eliminate the threat of less competition after a Rogers merger with Shaw, according to the Competition Bureau. The Commissioner of Competition had let it be known earlier this year that he feared higher prices, reduced quality of service and a loss of choice, particularly in wireless services.