In a $26 billion trade, Rogers signs a contract to purchase Shaw.
As part of the contract, Rogers will invest $2.5 billion in 5G networks across Western Canada over the next five years.
Rogers Communications has agreed to buy Shaw Communications for $26 billion, including debt, creating Canada's second largest wireless operator — but the deal is likely to face regulatory scrutiny.
Rogers would pay each of Shaw's issued and outstanding class A and class B shares $40.50 in cash under the agreement. On Friday, Shaw's class B shares on the Toronto Stock Exchange closed at $23.90.
As part of the agreement, Rogers will invest $2.5 billion in 5G networks across Western Canada over the next five years, according to the firms.
Rogers also announced the creation of a new $1 billion fund dedicated to providing high-speed internet access to rural, remote, and Indigenous communities throughout Western Canada.
Rogers will leapfrog current No. 2 Telus to take on market leader BCE Inc., the publicly traded holding company for the Bell Canada group of companies, by purchasing fourth-ranked Shaw.
"Rogers and Shaw were still expected to get together at some point. And I've known about it for 30 years "Agilith Capital portfolio manager Patrick Horan told CBC's Meegan Read on Monday. "However, today is the day it actually occurred."
In late-morning trading, the news also helped lift Canada's main stock index. The S&P/TSX composite index was up 19.76 points at 18,871.08. The telecom sector led the way higher.
The deal is subject to shareholder approval and regulatory approval.
Other customary closing terms, as well as approvals from Canadian authorities, are part of the transaction, which includes shareholder approval. It will be completed in the first half of 2022.
The Canadian Competition Bureau, the Canadian Radio-television and Telecommunications Commission (CRTC), and the federal department of Innovation, Science, and Economic Development will all review the contract (ISED).
The analysis would concentrate on "affordability, competitiveness, and creativity," according to Canadian Innovation Minister François-Philippe Champagne.
In a Monday morning conference call with investors, Rogers CEO Joe Natale said it's too early to comment about whether the rivals will be forced to divest any of their operations.
"However, we are optimistic that this transaction will be accepted," Natale said.
Horan anticipates approval issues on the wireless side, but believes the transaction will go through. "The question is how they manage wireless, specifically Shaw wireless. And that's a little more difficult "he said
"I have to believe Rogers has something ready to say: 'We should carve out sort of special interests or regional interests for Shaw wireless and float them.'"
Currently, there is an East-West divide.
Since the Shaw and Rogers cable and internet businesses, which are based in Western and Eastern Canada, have no overlap, Natale assumes the emphasis will be on their wireless businesses.
"And for obvious reasons, I'm not going to get into what our reasoning is on that," Natale said.
Rogers owns and operates a nationwide wireless network that goes by the names Rogers, Fido, and Chatr. In Alberta, British Columbia, and Ontario, Shaw owns Freedom Mobile and Shaw Mobile.
Few information about how the two companies intend to generate $1 billion in synergies, which would mostly come from cost savings, were disclosed by executives from both companies.
They did note, however, that savings from operating expenses would definitely be greater than savings from capital expenditures on equipment.
Tony Staffieri, Rogers' chief financial officer, said that with regulatory approvals still at least a year away, there are too many unknowns to make cost-cutting estimates.
Shaw's CEO is optimistic about the long-term benefits.
The leadership of the two family-controlled firms, however, made it clear at the joint news conference that they believe the merger would yield significant benefits.
In a statement, Shaw executive chair and CEO Brad Shaw said, "While unlocking enormous shareholder value, merging [the] companies also creates a truly national provider with the capacity to invest greater capital more quickly to develop the wireline and wireless networks that all Canadians need for the long term."
The merged company will establish a Western regional headquarters in Calgary, which will be home to the president of Western operations and other senior executives.
Rogers said it has arranged dedicated funding to fund the cash component of the transaction, with approximately 60% of the Shaw family stock being exchanged for 23.6 million Rogers B-class shares.
Brad Shaw will be elected to the Rogers board of directors, along with another director nominated by the Shaw family, which will become one of the company's main shareholders.