Ruth Saldanha: It's been a mixed start to 2023 for Canadian telecom giants, Rogers (RCI) and Shaw (SJR). First, Canada's merger court ruled in favor of the proposed merger between the two, clearing what was one of the final hurdles blocking the historic $20 billion deal. Then, earlier this week, a federal court issued an emergency stay temporarily suspending the competition tribunal's dismissal. If the Tribunal's decision stands, the merger will only require the approval of Canada's federal industry minister to go ahead. The deal was originally scheduled to close by the end of last year, with a possible extension to January 31st of this year. So, what happens next? And have the gains all been priced in? Morningstar equity analyst, Matthew Dolgin, covers both stocks and is here today to tell us what he expects. Matthew, thank you so much for being here today.
Matthew Dolgin: Thanks for having me, Ruth.
What Next for the Rogers-Shaw Merger?
Saldanha: So, how important are all the developments up till this time?
Dolgin: Well, certainly, the decision by the competition tribunal last week was critical. That was and is the biggest hurdle in this deal finally closing, and it was a favorable outcome. And the reasoning by the Tribunal indicated that they believe this was not going to be anti-competitive and actually was going to be good for competition, which is our belief also, and the reason we think it should go through. So that was a very important development. As you mentioned, the Competition Bureau then appealed this. So, it's still on hold right now. But I thought the reasoning of the Tribunal was solid, and I expect that this appeal eventually will be dismissed, and the decision of the Tribunal will hold up and that approval will take place. So, it was very important, and although it's delayed, it should indicate what's going to end up happening, which is, this deal going through.
When Will the Rogers-Shaw Deal Close?
Saldanha: How much more time, or how many more steps until that deal actually closes?
Dolgin: Well, January 24th is when the appeal will be heard. So, after that, I would think maybe sometime in February we'll have an idea. But once the appeal is wrapped up, as you mentioned, the industry minister is the only other regulatory hurdle that needs to be cleared. The industry minister has previously stated that things that he thinks are necessary for him to approve this deal, and Quebecor (QBR), which is the firm that's buying Freedom Mobile, Shaw's wireless business, has said that it thinks those terms are acceptable. So, I don't expect that's going to be an issue. It's – I don't want to call the formality – but that's likely going to occur. So, after the appeal is finished, the industry minister should approve it, and those will be all the regulatory hurdles. As you mentioned also, this deal was supposed to close by the end of last year. I believe Quebecor has said January 31st is the outside date. So, there may be some other extensions that the companies need to be willing to put forward. But I think that each of the three parties involved, they're very motivated to get this done, and if it looks like it may need to be February, my view is that they will be okay with that, and they will put the extension in place.
Should You Buy Either Rogers Stock, or Shaw Stock, Right Now?
Saldanha: Both Rogers and Shaw jumped after the news of the Tribunal's decision last week. Are they still buys at this point?
Dolgin: Well, Shaw, I do not think is a buy. It's trading close to $39. The acquisition price is $40.50. So, being that there's still a little bit of risk, it's just not worthy, very limited upside that's possible. And if the deal did fall through, I think there is a long way to go down. Rogers, I do think is still a buy. It has also come up quite a bit not only last week on this news, but in the couple of months preceding that. So, it's gone from the mid-50s to the mid-60s. Our fair value estimate is $70. We still think that there is upside and that it is a buy, but it's not quite as attractive as it was before. And the other company I mentioned Quebecor, I don't think that should be an afterthought. I think that this deal for them acquiring Freedom Mobile is very good, and they're trading just over $30. Our fair value estimate is $35. We think that's attractive also.
Will My Phone Bill Reduce?
Saldanha: So, finally, what does all of this mean for Canadian consumers?
Dolgin: Again, our view has been that this is going to be good for competition. On the wireless side, we believe that Freedom Mobile is in much better hands with Quebecor than it was with Shaw. Quebecor has a business in Quebec. They also have additional wireless spectrum that they can add to the Freedom Mobile's network in the other provinces. So, we think that Freedom Mobile will be a much stronger fourth national competitor and give consumers a better fourth option throughout Canada. It's interesting also the Competition Bureau in saying this was anti-competitive was not in any way saying that the wireline side of it, and that's the business that Rogers will acquire from Shaw – they were not saying that was going to be anti-competitive. So, that shouldn't be a factor for consumers. And they weren't even saying that wireless was going to be a problem anywhere but Alberta and British Columbia. So perhaps consumers there might see a little bit of an impact. But again, overall, and even there, we think that this is good for consumers in Canada.
Saldanha: Thank you so much for joining us with your perspectives, Matthew.
Dolgin: Thanks, Ruth.
Saldanha: For Morningstar, I'm Ruth Saldanha.
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