Challenges in the Rogers and Shaw M&A

Overview: On March 15, 2021, Rogers Communication Inc announced a $26 billion deal to acquire Shaw Communications Inc, the parent company of Freedom Mobile. The acquisition deal would see the two brands come together creating one of Canada’s biggest telecommunication brand and accounting for roughly 31.71% of the telecommunication market. However, with an analysis of past mergers and acquisitions blocked by the Canadian Federal Government due to the Competition Act, it is evident that the deal between Rogers and Shaw will likely be contested in Federal courts which will inevitably lead to the deal being blocked. Analysis: An analysis of past mergers and acquisitions deals blocked by the Federal Government illustrates the resistance that the proposed deal between Rogers and Shaw will encounter in the court system. To highlight this resistance, we will use the concentration ratio-4 (CR4) which adds up the market share of the 4 biggest companies in an industry to quantify the competitive framework of the industry. One of Canada’s most famous M&A blocked by the Canadian Government is the proposed merger deal between the Royal Bank of Canada (RBC) and Bank of Montreal (BMO) in 1998. In 1998, these two banks announced that they will merge creating the biggest bank in Canada with roughly 44.04% control of the banking industry. An analysis of the concentration ratio prior to the acquisition illustrates that the 4 biggest banks in Canada controlled roughly 84.83% of the banking industry. After the acquisition however, the four biggest banks which include RBC and BMO as one entity will have a CR4 ratio of 100%. This garnered attention from the Federal Minister at the time, Paul Martin, thus prompting the Federal Government to block the deal between the two banks. Rogers and Shaw Deal: The deal between Rogers and Shaw is analogous to the deal between RBC and BMO in 1998. An analysis of revenues for telecommunication businesses in 2019, abstracting away from the impact of COVID, revealed that the CR4 of the industry is roughly 91.34%. However, under the proposed deal between Rogers and Shaw, the four biggest telecom businesses will account for roughly 98.01% of industry revenues. Because the 4 businesses have a significant market power under the proposed Rogers and Shaw deal the Federal Government is likely to step in and block the acquisition deal. With a high probability that the acquisition deal will be blocked by the Federal Government, the share price for both companies will likely fall. However, Shaw’s share price will likely be more impacted by the rejection decision compared to Rogers because its share price has roughly increased in value by 60% relative to preannouncement levels. 

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RafChan

Apr 28, 2021

-1.22%

Change % Since Posting

28.66

Price When Posted

-0.35

Change Since Posting

SJR

Shaw Communications Inc. - Class B

29.01

0.01
0.03%
Current Price

Challenges in the Rogers and Shaw M&A

bearish

Overview:

On March 15, 2021, Rogers Communication Inc announced a $26 billion deal to acquire Shaw Communications Inc, the parent company of Freedom Mobile. The acquisition deal would see the two brands come together creating one of Canada’s biggest telecommunication brand and accounting for roughly 31.71% of the telecommunication market. However, with an analysis of past mergers and acquisitions blocked by the Canadian Federal Government due to the Competition Act, it is evident that the deal between Rogers and Shaw will likely be contested in Federal courts which will inevitably lead to the deal being blocked.

Analysis:

An analysis of past mergers and acquisitions deals blocked by the Federal Government illustrates the resistance that the proposed deal between Rogers and Shaw will encounter in the court system. To highlight this resistance, we will use the concentration ratio-4 (CR4) which adds up the market share of the 4 biggest companies in an industry to quantify the competitive framework of the industry.

One of Canada’s most famous M&A blocked by the Canadian Government is the proposed merger deal between the Royal Bank of Canada (RBC) and Bank of Montreal (BMO) in 1998. In 1998, these two banks announced that they will merge creating the biggest bank in Canada with roughly 44.04% control of the banking industry. An analysis of the concentration ratio prior to the acquisition illustrates that the 4 biggest banks in Canada controlled roughly 84.83% of the banking industry. After the acquisition however, the four biggest banks which include RBC and BMO as one entity will have a CR4 ratio of 100%. This garnered attention from the Federal Minister at the time, Paul Martin, thus prompting the Federal Government to block the deal between the two banks.

Rogers and Shaw Deal:

The deal between Rogers and Shaw is analogous to the deal between RBC and BMO in 1998. An analysis of revenues for telecommunication businesses in 2019, abstracting away from the impact of COVID, revealed that the CR4 of the industry is roughly 91.34%. However, under the proposed deal between Rogers and Shaw, the four biggest telecom businesses will account for roughly 98.01% of industry revenues. Because the 4 businesses have a significant market power under the proposed Rogers and Shaw deal the Federal Government is likely to step in and block the acquisition deal. With a high probability that the acquisition deal will be blocked by the Federal Government, the share price for both companies will likely fall. However, Shaw’s share price will likely be more impacted by the rejection decision compared to Rogers because its share price has roughly increased in value by 60% relative to preannouncement levels. 

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