Rogers, Shaw Shares Fall As Massive Outage Casts Doubt Over C$20 Billion Deal

Shares of Rogers Communications Inc and takeover target Shaw Communications fell on Monday as analysts voiced concerns over increased risk to the C$20 billion ($15.4 billion) deal following last week's 19-hour Rogers outage.

Rogers suffered an unprecedented outage on Friday that affected nearly every facet of daily life in Canada as access to internet and phone services, both mobile and landline, was cut off. Some callers could not reach emergency services via 911 calls, police across Canada said.

On Monday, Canadian payment gateway Interac said it was adding another network provider to its system after the Rogers outage left millions of Canadians locked out of online payments.

"We are adding a supplier (besides Rogers) to strengthen our existing network redundancy so Canadians can continue to rely on Interac daily," Interac said in a statement.

Rogers' Canadian-listed shares fell 4.6% and Shaw dropped 4.3% to C$34.67, while the benchmark Canadian share index ended down 1.2%. Rogers has offered C$40.50 per Shaw share.

The probability of the deal closure dropped to about 62% on Monday from 88% a week ago, according to merger arbitrage traders.

Industry Minister Fran?ois-Philippe Champagne, who met the CEOs of Rogers, BCE Inc and Telus Corp on Monday in the wake of the outage, directed telecom companies to develop communication protocols to keep people better informed.

Champagne, whose ministry has the final say on the deal, said he will not allow wholesale transfer of licenses from Shaw to Rogers as the part of the transaction. "It is all about affordability and competition," Champagne said of the merger.

STEEP BILLS

The three telecoms companies control about 90% of Canada's telecommunications market and consumers have complained about bills that are the among the highest in the world. Rogers' second outage in 15 months has led consumers and politicians to call on the government to allow more competition in the sector.

"The incident is likely to introduce incremental regulatory risk to the Shaw transaction," BMO analyst Tim Casey said, adding that it would also raise investor concerns over Rogers' ability to execute on deal synergies.

Friday's disruption came two days after Rogers held talks with Canada's antitrust authority to discuss possible remedies to its blocked takeover of Shaw. Canada's competition bureau blocked the deal earlier this year, saying it would hamper competition.

"We very much remain committed to the Shaw transaction," Rogers CEO Tony Staffieri told BNN Bloomberg Television on Monday. "That transaction has always been about expanding our network capabilities, attaining more redundancy and coverage across the nation that can only help in situations like this," he added.

Rogers on Saturday said its services were close to fully operational and narrowed the cause to a network system failure following a maintenance update.

A research note by Scotiabank estimated Rogers would have to credit between C$65 million to C$75 million to customers in the third quarter due to the outage. The company reported a net income of C$1.56 billion in 2021.

Montreal-based law firm LPC Avocat Inc filed a class action suit against Rogers on Monday asking the company to pay C$400 to each of Rogers' customers for not providing services and making false representation about having the most "reliable" network.

Rogers has about 10 million wireless subscribers and 2.25 million retail internet subscribers.

Rogers was not available for immediate comment on the proposed class action suit. Staffieri said previously that the company would credit all customers for the outage.

Scotiabank analysts also said increased political and regulatory risk is a possibility after the outage.

The oversight needs to balance the risk of future failures against the increased consumer/economic costs in building other parallel networks, they added.

($1 = 1.2985 Canadian dollars)