2 Telecom Stocks to Track While the Merger Is on Pause

If you understand how a merger might impact the stock of the resulting entity, you can make an informed decision about buying and selling a stock before it.

| More on:

The telecom industry in Canada is highly consolidated. Three major players control the bulk of the market, and the smallest one by market capitalization — Rogers Communications (TSX:RCI.B)(NYSE:RCI), is planning to merge with Shaw Communications (TSX:SJR.B)(NYSE:SJR) for $20 billion. If the deal goes through, it would be one of the largest mergers in Canadian history.

The deal is currently facing some antitrust problems. Canada’s Competition Bureau is trying to prevent the deal from going through, and instead of pushing ahead, the two companies — or rather, Rogers — have paused the merger for now. If both Rogers and Shaw manage to quell the concerns of the commission, the deal might go through as originally planned.

Now, investors who want to get in on the action have more time to decide whether to buy, hold, or sell the two stocks or wait for the deal to go through.

The Calgary-based telecom company

Shaw Communications has an impressive customer portfolio. It has about 7.1 million subscribers, about five million of which are wireline subscribers (consumer and business) and the remaining 2.1 million wireless subscribers.

Its wireline revenue, the bulk of which came from consumers, is holding quite well considering how rapidly everything is going wireless. Despite being smaller than the three giants, it’s still a large-cap stock.

The stock of Shaw Communications rose quite rapidly when the deal was announced (March 2021). But even after a 42% hike in two weeks, the price still falls short of what Rogers planned to buy it for.

It’s still a bit lower than the proposed price point, primarily thanks to the dip the stock had experienced in the last couple of months when it became apparent that the deal might hit a snag. It helped push the yield higher to 3.3%, while the valuation remains reasonably fair.  

The Toronto-based telecom company

Rogers stock saw a decent hike when the deal was announced, but it couldn’t retain that height as Shaw did. It saw a more substantial growth phase in the last six months, followed by a sharp 13% decline. The drop has pushed the yield up to 3%. The valuation is also now quite closer to that of Shaw, and in a way, the two stocks are “syncing.”

The merger is going to be quite powerful for Rogers, and not just due to a sheer increase in the customer pool size. Shaw has an impressive portfolio of wireline customers, slightly larger than Rogers. It also has a better reach, and once the merger is complete, the geographical footprint of wireline customers (primarily fibre optic) of the resulting company would be quite extensive.

The wireless business of Rogers is extensive and makes up for the bulk of its revenue, and Shaw’s addition will enhance it even more.

Foolish takeaway

The impact of the merger on the two other companies in the telecom sector, BCE and Telus, will be just as profound as it will be on the two merging companies. And it might be difficult to predict what will happen after the merger, but it’s reasonable to assume that if the deal falls through, both Rogers and Shaw stocks will take a massive hit.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends ROGERS COMMUNICATIONS INC. CL B NV and TELUS CORPORATION.

More on Dividend Stocks

Map of Canada showing connectivity
Dividend Stocks

Trump’s Tariffs: 1 Canadian Stock to Dump and 1 to Buy Immediately

As Trump threatens tariffs on Canada, these are two top stocks to watch.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

TFSA: 4 Canadian Stocks to Buy Now and Hold Forever

These top Canadian stocks could give a big boost to your hard-earned TFSA savings in the long run.

Read more »

stock research, analyze data
Dividend Stocks

Prediction: These Could Be the Best-Performing Value Stocks Through 2030

Despite short-term challenges, these top Canadian value stocks could outperform the broader market by a wide margin in the coming…

Read more »

An investor uses a tablet
Dividend Stocks

Where Will BCE Stock Be in 5 Years?

Despite facing big short-term challenges, BCE stock’s strong market position, steady dividend, and long-term vision make it worth watching.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Want Safe Dividend Income in 2025? Invest in the Following 3 Ultra-High-Yield Stocks!

The market is full of great income stocks, but this trio can provide growth potential and safe dividend income for…

Read more »

A meter measures energy use.
Dividend Stocks

Power Up Your Defences: Canadian Utility ETFs for Steady Income

It is time to power up your defence strategy to withstand market uncertainty around a looming trade war with Canadian…

Read more »

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Dividend Stocks

What to Know About Canadian Railway Stocks for 2025

The Canadian National Railway (TSX:CNR) isn't the only railroad stock in town.

Read more »

monthly desk calendar
Dividend Stocks

Top Canadian Stocks to Buy for Monthly Income

Looking for some stocks to buy for monthly income? Here's a pair of great stocks that can provide both income…

Read more »