(Bloomberg) — Quebecor Inc. is getting a bargain as two of its rivals attempt to close their merger by divesting Freedom Mobile, Canada’s fourth-largest wireless provider, according to analysts.
Quebecor has agreed to pay C$2.85 billion ($2.2 billion) for Freedom — a side deal by Shaw Communications Inc. and Rogers Communications Inc. that’s designed to resolve antitrust concerns about their C$20 billion deal.
The headline figure for Freedom is below the consensus C$3 billion to C$4 billion value of Shaw’s wireless assets, according to Tim Casey, analyst at BMO Capital Markets. The Quebecor deal includes most, but not quite all, of Shaw’s wireless assets: Rogers is trying to keep a small number of customers who are Shaw cable and internet consumers and also have phones under the Shaw Mobile brand.
Quebecor rose 6.3% to C$29.39 as of 11:07 am in Toronto. Rogers jumped 6.9%, and Shaw was up 6.7%, trading just below C$37. The Rogers takeover offer is C$40.50 per Shaw share.
‘Biting the Bullet’
Rogers’ plan to acquire Shaw hit a regulatory roadblock in May after Canada’s Competition Bureau sued to stop the deal, citing anti-competitive concerns in the wireless business, where the companies’ operations overlap. Rogers and Shaw were already looking for a buyer for Freedom Mobile at the time. That’s when Quebecor stepped in.
The deal with the Montreal-based communications firm may check the boxes the bureau is looking for, according to some analysts.
Competition in the sector would increase because Quebecor would scale up Freedom Mobile’s operations after the deal closes, said Jerome Dubreuil, a telecommunications analyst at Desjardins Securities Inc. That would also keep Freedom a viable competitor in key markets like Toronto and Vancouver.
“Quebecor gets an attractive deal,” Dubreuil said in a note to investors. “Rogers is biting the bullet and making the right moves to increase the odds of gaining regulatory approval for its merger. Meanwhile, Quebecor is picking a ripe fruit and extending its growth runway with its core competencies for a reasonable price.”
The question now is whether Rogers and Shaw can persuade the antitrust body and the federal government to accept the Quebecor solution, preventing a protracted hearing at the Competition Tribunal, Canada’s merger court. The parties are expected to work through a negotiated settlement this summer, with the deal closing in July or August, said Adam Shine, an analyst at National Bank Financial.