After two years and numerous twists and turns, Rogers (RCI.A / RCI.B) and Shaw (SJR.B) finally received the final approval needed to complete their merger, with consent from the industry minister for Innovation, Science, and Economic Development, or ISED. As previously agreed, Quebecor (QBR.B) will take over Freedom Mobile, which comprises most of Shaw’s wireless business. The ISED formalized some requirements for Rogers and Quebecor, but most of these were consistent with terms the two companies previously stated were acceptable. Nothing in the approval changed our long-held view that the deal is valuation neutral for Rogers and positive for Quebecor. We already expected the deal to be approved, so we are maintaining our fair value estimates of $73 for Rogers and $35 for Quebecor.
Rogers and Quebecor released few details regarding how Shaw’s asset base is being split up and the exact portion of Shaw’s wireless subscriber base associated with Freedom Mobile rather than the relatively small Shaw Mobile, which goes to Rogers. We will look forward to refining our assumptions when we get that information. Rogers revised high-level 2023 guidance upon receiving news of the approval. Expectations are generally consistent with what we would expect after incorporating Shaw’s wireline business, which makes up the bulk of what Rogers is receiving.
To us, the key for Rogers is to realize most of the cost synergies it initially anticipated, and nothing in the terms of the March 31 approval leads us to doubt that achievement. Most of the requirements put on Rogers simply formalize items Rogers already promoted when announcing the proposed merger. If Rogers can achieve the cost synergies, they will offset the premium we feel it is paying for Shaw. We don’t expect major benefits from holding the expanded wireline network, and we think the sale of Freedom Mobile is beneficial, eliminating some cash costs for a Shaw wireless business that was struggling and largely redundant to what Rogers already has.
Despite our view that Rogers is better off selling Freedom Mobile, we think it is a great purchase for Quebecor, and nothing in March 31’s formalized requirements changes our view. Quebecor currently has no wireless business outside of Quebec but intended to expand nationally even if it didn’t acquire Freedom Mobile. The purchase gives Quebecor a big head start in a national wireless business that would likely have burned cash initially and would have competed against Freedom Mobile in a secondary tier of providers. Quebecor gets good assets and a meaningful customer base for a good price—less than CAD 3 billion—and will be the primary alternative for customers not choosing one of the major carriers. Considering Quebecor’s wireless footprint in Quebec, nationwide spectrum licenses it holds, and resources and ambition to compete aggressively, we think this will give Canada a much stronger fourth national provider.
Requirements formalized for Quebecor—which Quebecor had already publicly said were acceptable—include a prohibition on selling the Freedom Mobile spectrum licenses for 10 years and a commitment to offering service plans at prices comparable with what Quebecor offers in Quebec—20% lower than the big three carriers. Quebecor’s strategy has always been to take its Quebec strategy national and undercut on pricing, so again, this does not in any way detract from what Quebecor intended to execute.
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