Canada’s telecom sector created headline noise on March 21, 2023, when Rogers Communications (TSX:RCI.B) agreed to buy rival Shaw Communications. Industry giants BCE and TELUS howled and opposed the $26 billion transaction, including debt.
Shaw shareholders approved the proposed sale, but it was a gruelling road for Rogers because of regulatory hurdles. The Canadian Radio-television and Telecommunications Commission (CRTC), Competition Bureau, and Innovation, Science and Industry Minister François-Philippe Champagne were the obstacles.
After several deadline extensions and mediations, Rogers announced the takeover of Shaw with finality on April 3, 2023. RBC Capital Markets said the done deal ushered in a new era of competition. As of this writing, Rogers ($27.4 billion) is the third-largest player in the oligopoly by market cap, after BCE ($34.4 billion) and TELUS ($31.8 billion).
RCI.B hovered around $60 before the merger. Today, it trades at $50.39 per share, a -16.6% year-to-date loss and approaching the 52-week low of $48.67. Is it time to buy the telco stock at this depressed price? The dividend offer is 3.9%.
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Deal conditions
The approval came with unprecedented conditions. Shaw had to sell its Freedom Mobile unit to Quebecor’s Videotron. Meanwhile, the federal government ordered Rogers to invest $5.5 million to improve network services. It must create new jobs in Western Canada and maintain them for at least 10 years. There were 19 other conditions to address antitrust concerns.
Champagne also announced a freeze on all major license transfers in the telecom sector. The parties to the deal, Rogers and Videotron, will also pay penalties of up to $1 billion and $200 million if they violate the conditions. The Industry minister said it was a “contract with Canadians.”
Year-to-date financial performance
Rogers has three reportable segments: wireless, cable, and media. Rogers Communications Canada, a wholly owned subsidiary, operates wireless and cable while media falls under Rogers Media. In Q3 2024, net income reached $526 million compared to the $99 million net loss in Q3 2023.
Its President and CEO, Tony Staffieri, said, “We delivered strong market share, record margins in cable and wireless, and we are on track to deliver our full-year targets.” He added that Rogers delivered an eleventh straight quarter of growth.
In the nine months ending September 30, 2024, net income ballooned 126% year-over-year to $1.2 billion and free cash flow (FCF) climbed 36% to $2.2 billion from a year ago.
Rogers will sell a minority equity interest of its wireless backhaul transport infrastructure to private equity firm Blackstone for $7 billion to reduce debt.
Business development
The latest business development is the sale of BCE’s 37.5% stake in Maple Leaf Sports & Entertainment (MLSE) to Rogers for $4.7 billion. MLSE, a professional sports and commercial real estate company, owns the Toronto Maple Leafs in the NHL and NBA team Toronto Raptors, among others.
Rogers will be the MLSE’s majority owner if it secures approval and the transaction closes in mid-2025. Staffieri said, “As Canada’s leading communications and entertainment company, live sports and entertainment are a critical part of our core business strategy.”
Long-term value
Rogers’ current share price betrays the company’s growth potential. The telco stock is a good prospect, given its strong asset base and enhanced sports portfolio, which could provide long-term value.
