Rogers Communications Inc. signage is pictured in Ottawa on July 12, 2022.Sean Kilpatrick/The Canadian Press
Rogers Communications Inc. RCI-B-T says its lenders have agreed to give the company more time to close its planned acquisition of Shaw Communications Inc. SJR-B-T, in return for up to $775-million in extra fees on financing for the $26-billion deal that’s been delayed by regulatory opposition.
The telecom company received a one-year extension on a deadline to buy back about $12-billion worth of bonds it issued in March to finance its planned takeover of Calgary-based Shaw, Rogers said in a news release late Wednesday.
Under the debt offering’s original terms, Toronto-based Rogers was obligated to buy back the bonds at 101 cents on the dollar if the deal didn’t close by the end of the year. Bondholders have now agreed to extend the deadline to Dec. 31, 2023, Rogers said.
In return, Rogers will pay bondholders an initial fee of $520-million. The company may also be on the hook for an additional $255-million in fees if the deal doesn’t close by the end of this year. If the deal is called off, Rogers will buy back the bonds.
In March, Rogers sold eight issues of bonds in U.S.-dollar and Canadian-dollar denominations with maturities that ranged from three to 30 years to help fund the Shaw purchase. Since then, interest rates have soared as central banks raised benchmark borrowing costs to tackle inflation. The fees Rogers agreed to pay bondholders for the extension represent, in part, compensation for the higher cost of borrowing in the current credit market .
The federal Competition Bureau is attempting to block Rogers’ acquisition of Shaw, saying it would weaken competition in wireless markets, resulting in higher cellphone bills. To meet those concerns, Rogers agreed this summer to sell Shaw-owned cellphone provider Freedom Mobile to Quebecor Inc. QBR-B-T for $2.85-billion should the deal be approved.
The telecom companies and the bureau are scheduled to argue the case before a federal tribunal in November.
Rogers and Shaw announced their merger plans in March, 2021, and forecast the transaction would close in the first half of this year. Opposition from regulators has delayed the deal and some analysts predict it may take until the summer of 2023 to complete.
Uncertainty over the fate of the Shaw takeover is weighing on the price of Rogers and Quebecor stock, according to analysts, in addition to creating costs. Shares in all three companies underperformed rivals Telus Corp. and BCE Inc. over the past year, in part because investors anticipate Rogers and Quebecor will need to sell equity, in addition to borrowing, to pay for their acquisitions. Any stock sale would dilute the value of existing shares in the two companies.
If the Competition Bureau blocks the takeover, analysts say, Shaw’s wireless business will face significant competitive challenges because the company sat out last year’s auction of 5G wireless spectrum. In a report, National Bank analyst Adam Shine said the Shaw family has made it clear it wants to “call it quits” and there is no guarantee the company would return to its previous level of investment if the takeover were blocked. Mr. Shine said: “Surely, the best solution now is for it to be in new hands.”
In July, 2021, the federal government raised $8.9-billion selling wireless licences across the country. Rogers spent the most on airwaves, committing $3.3-billion, while Quebecor spent $830-million, half of which went to acquiring spectrum in Ontario, Manitoba, Alberta and B.C. to support expansion out of its home market in Quebec.
Over the past 15 years, federal Conservative and Liberal governments have pushed for wireless competition between four national players. Analysts say Rogers’ acquisition of Shaw and the subsequent sale of Freedom Mobile as a remedy to competition concerns is the best path to achieving that policy goal. Rogers has committed $6.5-billion to expanding its networks in Western Canada if the Shaw deal is approved, including improved services for rural and Indigenous communities.
“We believe the proposed remedy package with Quebecor is highly complementary to Canada’s broader telecom policy, and importantly, avoids several ‘lose-lose-lose-lose’ scenarios that can emerge if the current transaction is not remedied on a timely basis and therefore unable to close,” analyst Drew McReynolds at RBC Capital Markets said in a report.
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