Could the Rogers-Shaw Merger Have More Hair on it Than Previously Thought?

Here’s why the Rogers Communications Inc. (TSX:RCI.B)(NYSE:RCI) deal for Shaw Communications Inc. (TSX:SJR.B)(NYE:SJR) could have some hair on it.

The 5G space is certainly an exciting one. This excitement continues to build of late, among two of Canada’s biggest players. Indeed, the fact Shaw Communications (TSX: SJR.B)(NYSE: SJR) accepted a takeover bid worth $20.4 billion from Rogers Communications (TSX: RCI.B)(NYSE: RCI) is noteworthy. This consolidation could create a behemoth in the 5G space investors will certainly want to own.

It appears bother companies are bullish on this deal. They believe consolidation will provide increased long-term growth potential. Indeed, this merger has some serious synergy potential, if everything goes through.

That said, there’s a regulatory review on the table. Accordingly, there are concerns.

Cogeco CEO is worried about the acquisition deal

The CEO of Cogeco Communications (TSX: CGO), Philippe Jetté, expressed his concern regarding this deal. He believes the consolidation of power of the Big Three telecommunication companies in Canada could be detrimental to the industry. Thus, he’s calling for a regulatory framework that will provide support to the small carriers. Such a framework would also help maintain competition at the same time.

Cogeco conducts its operations in Ontario and Quebec, providing services like home phone and internet. Last year, the company rejected a $11.1 billion takeover deal from Rogers. Previously, it had expressed its desire to enter the wireless market. However, this company said that it can only enter the sector if the CRTC makes it mandatory for national carriers to provide network access to smaller players.

Cogeco and Competition Bureau have suggested a hybrid model 

Both Cogeco and the Competition Bureau have proposed that only companies that are willing to spend on infrastructure will gain access to national wireless networks. Jetté has further stated that entering the Canadian mobile market is extremely challenging, as a substantial amount of capital is required. Hence, it’s essential for small competitors to have access to wireless networks so that they can grow and expand their operations.

The Shaw and Rogers deal is not a done deal yet. Indeed, there are still some concerns related to competition. It’s expected the completion of this takeover could eliminate the country’s fourth-largest wireless carrier, Freedom Mobile.

Canada’s government has been pushing for more competition in the market to help lower Canadian’s telecom bills. Hence, many analysts believe that Rogers may have to sell Shaw-owned wireless assets (spectrum) to get regulatory approval. The CEO of Rogers Communications, Joe Natale, said that he’s confident that the company can reach an agreement with the governing bodies and complete the takeover.

Bottom line

Yes, the acquisition deal is far from being over, even though there’s a lot of excitement surrounding this takeover. Hence, we have to wait and see if it gets regulatory approval amid the concerns. For investors who remain optimistic that this deal will get approved, I believe this stock is definitely worth investing in right now.

That said, for those with a weak stomach, there could be volatility on the horizon.

Fool contributor Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool recommends ROGERS COMMUNICATIONS INC. CL B NV.

More on Dividend Stocks

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How I’d Structure My $14,000 TFSA for Constant Income

If you have $14,000 saved in your TFSA, here is one easy investment strategy to earn $50 of tax-free monthly…

Read more »

woman looks at iPhone
Dividend Stocks

I’m Not Selling Telus After the 55% Dividend Cut: Here’s Why

Contrary to what the market seems to be saying, Telus Corporation (TSX: T) still has a lot going for it.…

Read more »

monthly calendar with clock
Dividend Stocks

A No-Nonsense 3.7% Dividend Stock That Can Pay Retirees Monthly

This no-nonsense dividend stock has returned more than $3.4 billion to shareholders through dividends since 2013.

Read more »

dreaming of financial success
Dividend Stocks

3 Questions to Ask Before Buying a Dividend Stock

Buying a dividend stock? Here are three questions to help you look beyond the yield, with examples from Enbridge, Fortis…

Read more »

Woman in private jet airplane
Dividend Stocks

Make $100 a Month Tax-Free: How Much to Invest in Diversified Royalty and Where

The TFSA is the ultimate investment account to place your money and earn tax-free income.

Read more »

man in bowtie poses with abacus
Dividend Stocks

Passive Income From Dividends: What Canadians Can Realistically Expect

Here's the actual dividend math the passive income gurus won't show you.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

RRSP, TFSA or Both? A Quick Guide by Income Level

Your RRSP and TFSA are complementing accounts that you can use to shield your income from taxes.

Read more »

Real estate investment concept with person pointing on growth graph and coin stacking to get profit from property
Dividend Stocks

Buying Your First Home? The $8,000 FHSA Deduction Most Renters Miss

An eligible renter's $8,000 FHSA contribution can save $2,400 at a 30% tax rate, with the purchase date guiding investments.

Read more »