Will Rogers Stock Soar if the Merger With Shaw Happens?

If the pending telco merger finally obtains approval soon, expect the stock of Canada’s new, second-largest telco to soar considerably higher.

| More on:
Young woman sat at laptop by a window

Image source: Getty Images.

“So near, yet so far,” is what market observers are saying today about the proposed merger between Rogers Communications (TSX:RCI.B) and Shaw Communications. On December 29, 2022, Canada’s Competition Tribunal cleared the way for the $20 billion marriage of two telecom rivals.

Executives from Rogers and Shaw welcomed the tribunal’s decision, including Quebecor’s acquisition of Freedom Mobile by its subsidiary. The news was positive, especially for the shares of the buyer. RCI.B rose nearly 4% to $63.37 on December 30, 2022, the last trading day of the year.

The percentage advance is minimal because the Competition Bureau filed an appeal with and secured a stay order from the Federal Court of Appeal. Based on market analysts’ forecasts, the telco stock could climb to as high as $80 (+25.3%). A more considerable gain is possible if the merger happens soon.

Appeal and stay order

If not for the objection, the much-delayed transaction would have moved to the Innovation, Science, and Economic Development Canada (ISED), the final regulatory hurdle. The Competition Tribunal said that selling Shaw’s Freedom Mobile assets to Quebecor would result in four strong players in major markets.

However, the Competition Bureau asserts that the tribunal made a mistake in assessing the deal. Commissioner Matthew Boswell said, “I am very disappointed that the tribunal is dismissing our application to block the merger between Rogers and Shaw.”

Boswell maintains the position that the deal will negatively impact competition in Canada’s telecom sector and lead to higher mobile bills for consumers. A definitive agreement between Rogers, Shaw, and Quebecor is in place regarding the sale of Freedom Mobile to Videotron. The trio believes it will bring a strong fourth national wireless services provider.

Large-cap stocks BCE, TELUS, and Rogers combine to corner about 87% of wireless subscribers in Canada. The decision of Shaw to let go of Freedom Mobile, the fourth-largest mobile provider, is a way to appease the antitrust bureau and address its concerns.

Deadline extension

Rogers and Shaw have no other option but to extend the merger’s deadline to January 31, 2023, although it could mean additional payments to bondholders. Drew McReynolds, an analyst at RBC Capital Markets, thinks a reversal of the tribunal’s decision is unlikely. Also, the chances of the deal pushing through remain high. However, a decision might come by mid-2023.  

Published reports say the Federal Court of Appeal will hear the Competition Bureau’s appeal on January 24, 2023. Meanwhile, ISED minister Francois-Philippe Champagne said he needs clarity in the ongoing legal tussle before rendering a decision. McReynolds isn’t 100% sure that the ISED will approve the merger.

Second-largest telco soon

Rogers’s market capitalization stands at $32.27 billion, but the merger with Shaw will unseat TELUS as Canada’s second-largest telco. According to Rogers and Shaw, after obtaining the approval, the plan is to invest $2.5 billion in building 5G networks across Western Canada in the next five years.

Pending the takeover of Shaw, Rogers expects between 6% and 8% service revenue growth in 2022. Also, free cash flow for the year, excluding the Shaw financing, should be around $1.9 billion to $2.1 billion compared to $1.67 billion. The 3.6% dividend is safe and decent if you’re a dividend investor.   

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Rogers Communications and TELUS. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Dividend Stocks

10 Years From Now, You’ll Be Glad You Bought These Magnificent TSX Dividend Stocks

The TSX is lucrative to buy these magnificent dividend stocks in bulk and be proud of this decision 10 years…

Read more »

calculate and analyze stock
Dividend Stocks

4 Fabulous Dividend Stocks to Buy in July

Are you looking for long-term income? These four dividend stocks should not only provide you with value in July but…

Read more »

financial freedom sign
Dividend Stocks

5 Steps to Financial Freedom for Canadian Millennials

Follow these steps and nothing can stop Canadian millennials from achieving their early retirement dreams.

Read more »

Investor wonders if it's safe to buy stocks now
Dividend Stocks

We’re Only Getting Older: A Top TSX Stock That Benefits From an Aging Population

For a bet on the aging population, consider this small-cap stock with growth potential.

Read more »

Growing plant shoots on coins
Dividend Stocks

Yield Today, Growth Tomorrow: 3 Stocks to Keep Building Your Wealth

For investors seeking yield today and growth tomorrow, these top Canadian dividend stocks are certainly worth considering right now.

Read more »

Payday ringed on a calendar
Dividend Stocks

This 10.72% Dividend Stock Pays Cash Every Month

This dividend stock remains a consistent, defensive dividend producer that will give up over 10% in income each and every…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

TFSA Investors: 2 Standout Domestic Stocks With 7% Yields

These top dividend-growth stocks look oversold.

Read more »

Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Despite their recent declines, the long-term growth outlook of these two top dividend stocks remains strong, which could help their…

Read more »