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Shares of Canadian telco companies Shaw Communications (SJR 9.06%) and Rogers Communications (RCI 3.97%) are defying Friday’s broad market’s weakness by rallying into the headwind. Fueled by legal progress of their intended merger, as of 1:30 p.m. ET, shares of Shaw were up 9.3%, while Rogers’ stock was higher to the tune of 4.9%.
Canada’s cable TV, broadband, and wireless service provider Rogers Communications is one step closer to acquiring rival Shaw Communications. Late Thursday, Canada’s Competition Tribunal further paved the way for the deal by allowing Quebecor‘s (QBCA.F 1.19%) wholly owned subsidiary Videotron to proceed with its purchase of Shaw’s mobile phone arm Freedom Mobile. Without this divestiture, the pairing of Shaw and Rogers prospectively violates Canadian antitrust regulations.
Rogers’ acquisition of Shaw Communications still isn’t a done deal. Thursday’s official statement from the Competition Tribunal only states the Videotron/Freedom Mobile union should be allowed to proceed, which in turn facilitates the eventual Shaw/Rogers tie-up.
Canada’s Commissioner of Competition Matthew Boswell can still appeal the Competition Tribunal’s ruling regarding Videotron’s permission to purchase Freedom Mobile. And he’s considering doing so. Additionally, Shaw and Rogers must still work with Canada’s Minister of Innovation, Science, and Industry to properly and fairly transfer Freedom Mobile’s wireless spectrum licenses to Videotron.
Given the sweeping support for the deal from every interested party except Commissioner of Competition Boswell, though, the acquisition is unlikely to be barred at this point.
This is the next (and nearly final) step toward the merger shareholders of both companies have been patiently waiting on. The combined telco outfits should readily find cost-saving synergies, and at the same time enjoy a firmer sales reach.
In the wake of today’s price surges, though, there’s not likely to be any immediate upside beyond each stock’s current value.
That’s not to suggest either stock — or more precisely, the eventual combination of the two stocks — is a poor long-term investment. As noted, there are clear strategic advantages in melding these two organizations into one. It’s just not clear how soon these upsides and synergies will start being reflected in the merged companies’ fiscal results.
If you’re interested today, just be sure you’re interested for sound long-term reasons and not just enamored by the current news-based buzz. There’s still some potential volatility in store, and not all of it will be bullish.
James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends Rogers Communications. The Motley Fool has a disclosure policy.
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