Rogers seeks to buy Shaw for $20.4-billion in deal that would transform Canadian telecom market

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Rogers Communications Inc. plans to acquire rival Shaw Communications Inc. , uniting two family dynasties in a deal that will prompt Ottawa to rethink its policies on competition and connectivity in Canada’s mobile-phone market.

With telecom companies making multibillion-dollar investments to upgrade networks to 5G technology, chief executive Brad Shaw said he decided his Calgary-based company could no longer go it alone and agreed after years of takeover pitches from Rogers to embrace a $20.4-billion acquisition.

“5G and our urban and rural networks are critical to our customers, and we can move more quickly together than either of us could on our own,” Mr. Shaw said in an interview.

Sale of telecom empire has ‘generational impact’ on Shaw family

The takeover requires shareholder and regulatory approval from the federal government, which has policies that encourage four large players in the cellphone market. If the deal goes ahead, Rogers pledged to meet the government’s goal of connecting rural and Indigenous communities to high-speed internet by spending $6.5-billion to expand networks in B.C., Alberta, Saskatchewan and Manitoba.

The takeover is part of Rogers CEO Joe Natale’s strategy to aggressively build a national platform and capture all its customers’ telecom business, over cable, fibre, wireless and 5G networks.

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Both the federal Liberals and Conservatives have championed the idea of multiple competitors as a way to bring down cellphone bills. In the past, analysts have said if Rogers and Shaw merged, they would likely need to sell a portion of their wireless business to win over regulators.

Mr. Natale said in an interview that the two companies plan to tell regulators and politicians that combining their operations will increase efficiency, lower prices and increase connectivity, “bridging the digital divide” between cities and underserved rural and Indigenous customers. “This combination is the right thing for Canada and consumers,” he said.

In a report on Monday, BMO Capital Markets analyst Tim Casey said Rogers has set out “several regulatory-friendly proposals,” including committing to affordable wireless plans.

In announcing the deal, Rogers and Shaw made a series of promises to customers in Western Canada, including a pledge to add 3,000 new jobs in Alberta, B.C., Saskatchewan and Manitoba, and to maintain a significant regional head office in Calgary. If the deal is successful, Rogers plans to spend $2.5-billion rolling out its 5G network in the four provinces, and set up a $1-billion fund to provide high-speed internet to rural, remote and Indigenous communities. The company earmarked an additional $3-billion for upgrading networks in the West.

Alberta Premier Jason Kenney welcomed the announcement, saying he had spoken to the CEOs of both Rogers and Shaw and was pleased with the commitments to maintain a strong presence in Calgary.

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While Mr. Kenney acknowledged that the sale would mean the loss of another major corporate head office in the province, he said the plan outlined so far would see a net increase in high-paying jobs while improving service to rural and Indigenous communities. He said his government will press regulators to make those promises conditions of the deal.

“Rogers has made a number of positive commitments to increase jobs, service and investment in Alberta,” he said during a news conference. “If the proposal is approved, we would hold Rogers to those commitments, as they are good news to Alberta’s economy.”

Rogers is offering $40.50 a share for Shaw, a 70-per-cent premium to where the Calgary-based company’s stock recently traded. Shaw’s non-voting shares closed at $33.85 on the Toronto Stock Exchange, up 42 per cent on Monday, but still at a significant discount to Rogers’s offer. Analysts said the gap reflects concerns that regulators will block the transaction or require significant divestments from the companies’ wireless businesses.

Rogers received an irrevocable commitment to its bid from the Shaw family, which owns a $2.3-billion stake of the namesake company. The takeover needs approval from two-thirds of owners of both Shaw’s non-voting shares, which are widely held, and its voting stock, most of which is owned by the family.

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The seeds for the takeover were sown last summer. Mr. Natale had dinner with Mr. Shaw in Calgary while he was in Alberta to review Rogers’s operations; the two have known each other for years. Over the course of the meal, the two CEOs talked in general terms about joining forces. Mr. Shaw followed up with a phone call to Mr. Natale early this year, and the two agreed on specifics during a recent meeting at a Calgary airport hangar, negotiating across what Shaw’s CEO described as “an appropriate social distance.”

Bankers called the transaction “Project Scotch,” with Shaw codenamed “scotch” in all documents, to mask its identity, while Rogers was called “rum.” With Shaw’s debt included, the total value of the acquisition is $26.2-billion, among the largest takeovers ever staged by a Canadian company. The Shaw family will take 60 per cent of the purchase in Rogers non-voting shares and $920-million in cash, making the clan the second-largest shareholder, after the Rogers family. Rogers will fund the acquisition with cash on hand and by borrowing.

Mr. Shaw will join the Rogers board after the deal closes, and the Shaw family will have the right to name a second Rogers director. Combining the two companies is expected to result in $1-billion of annual cost savings for Rogers. If regulators and shareholders sign off, the two companies said the deal is expected to close in the first half of 2022. Rogers is buying Shaw at a multiple of 10.7 times the company’s forecast earnings before interests, taxes, depreciation and amortization, or EBITDA.

Both Rogers and Shaw were founded in the 1960s and built their businesses by acquiring a series of family-owned cable companies. Both saw their founders pass away relatively recently: Ted Rogers died in 2008 at the age of 75, and JR Shaw passed away last March at 85.

In talking about their company’s founders, the two current CEOs said Canada’s cable industry was built from the mergers of family-owned companies, with the Shaws and the Rogers among the most accomplished deal-makers. This common culture, along with years of rivalry that included numerous practical jokes, paved the way for a friendly takeover.

Rogers has coveted a national platform to better compete with Bell for decades. Mr. Natale said that at a Rogers board meeting last week to approve the transaction, long-time director and former chair Alan Horn said, “Somewhere, Ted is smiling, and saying ‘Now, will you just get on with it?’”

Last year, Rogers and U.S. telecom company Altice USA Inc. made an unsuccessful $10.3-billion bid for Quebec-based rival Cogeco Inc. Rogers continues to be the largest single shareholder in Cogeco and subsidiary Cogeco Communications Inc. Mr. Natale said the company’s friendly offer for Shaw has no bearing on its Cogeco investments.

Editor’s note: (March 15, 2021): An earlier version of this article misspelled the name of the law firm Burnet Duckworth & Palmer LLP.

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