Rogers-Shaw-Videotron Deal Will Improve Competitors, Tribunal Finds | Cozen O’Connor

The Rogers Communications Inc. deal to purchase Shaw Communications Inc. after Shaw sells its Freedom Cellular enterprise to Videotron Ltd. will enhance competitors, Canada’s Competitors Tribunal discovered.

The Commissioner of Competitors had utilized for a full block of the deal, alleging that it could increase cell phone plan costs and cut back competitors. In dismissing the case, the Tribunal rejected each allegation made by the Commissioner, holding not solely that the merger wouldn’t adversely have an effect on competitors it could, in truth, result in extra intense competitors, decrease costs, and extra selection for customers.

Triple play mergers

In March 2021, Rogers agreed to purchase Shaw for $26 billion. Rogers and Shaw are each web, cable TV, and cell phone suppliers. Their web and TV companies don’t overlap: Rogers is in Ontario, whereas Shaw is in British Columbia and Alberta. However, their cell companies do overlap. Rogers is the biggest of Canada’s “massive three” cell firms, whereas Shaw operates two cell manufacturers, Freedom Cellular, a low-cost supplier, and Shaw Cellular, supplied to its cable and web subscribers.

Unsurprisingly, Canada’s Competitors Bureau was involved that the tie-up would hurt cell phone competitors. Proposals by Rogers and Shaw to divest Freedom to 2 totally different monetary consumers didn’t allay this concern.

The Commissioner filed a problem to the merger in Could 2022, looking for a “full-block” of the deal.

Simply over a month later, Rogers and Shaw agreed to promote Freedom to Videotron for $2 billion. Videotron is a Quebec-based web, cable TV, and cell phone supplier. Rogers additionally agreed to offer Videotron with backhaul, transport, and different providers at enticing charges.

However, this was not sufficient to fulfill the Bureau. Two makes an attempt at mediation failed, and the case went to a full trial that resulted in mid-December.

The Tribunal dismissed the Commissioner’s utility in an 88-page resolution issued on New 12 months’s Eve, a report 17 days after the final day of argument.

Litigating a Hypothetical Transaction?

The Commissioner argued that the Tribunal should first study the unique deal—Rogers shopping for Shaw, together with Freedom—earlier than contemplating whether or not diving Freedom to Videotron would treatment any substantial lessening or prevention of competitors (SLPC) attributable to the merger.

The Tribunal refused this invitation to rule on a hypothetical transaction. It emphasised that Shaw would promote Freedom to Videotron earlier than Rogers would purchase Shaw. Consequently, “the ‘proposed merger,’ as outlined by the Commissioner, is not being proposed.” It’s because “what Rogers proposes to accumulate will not embrace the shares or belongings of Freedom.” “Rogers won’t ever personal Freedom or function Freedom,” as Shaw’s president mentioned. The Tribunal’s criticism of the Commissioner was scathing, saying, “The Commissioner’s insistence that the Tribunal spend scarce public assets assessing one thing that may by no means occur is divorced from actuality.”

Whether or not the evaluation is carried out in a single step, because the Tribunal did, or in two steps, because the Commissioner insisted, ought to make no distinction. The check is identical. After each the merger and the divestiture, is there an SLPC?

There’s a distinction in who bears the burden, nonetheless. On the Commissioner’s two-step strategy, the burden shifts to Rogers and Shaw to indicate that the divestiture could be an efficient treatment. On the one-step strategy adopted by the Tribunal, it remained on the Commissioner all through. Nonetheless, this virtually definitely made no distinction as a result of the Tribunal discovered that the merger plus divestiture would really enhance competitors. Primarily, it discovered the divestiture could be greater than treatment any SLPC.

Videotron could be a “Extra Aggressive and Efficient Competitor”

An important query in figuring out whether or not the deal would trigger an SLPC was whether or not Videotron, because the proprietor of Freedom, could be an aggressive and efficient competitor.

The Tribunal discovered that it could. Videotron, an skilled and profitable “market disruptor” in Quebec, “is far more dedicated than Shaw to be a long-term participant within the related markets” and “could be a extra aggressive and efficient competitor than Freedom and Shaw Cellular.”

The Tribunal additionally rejected the Commissioner’s competition that Freedom wanted Shaw’s wireline community to compete. Many wi-fi suppliers compete efficiently with out proudly owning their very own wireline networks. Freedom itself has no wireline community in Ontario, the place most of its prospects stay. Telus, Bell, and Rogers all compete in areas the place they don’t personal any wireline community. Nor would Freedom grow to be overly depending on community providers supplied by Rogers, as it’s free to purchase them from different suppliers in a market that has been discovered to be aggressive.

No Materials Value Improve

The Tribunal additionally discovered that the merger wouldn’t result in materially elevated cell plan costs in British Columbia and Alberta.

The Commissioner’s knowledgeable opined that cell costs would rise by 0.8% in Alberta and a pair of.5% in British Columbia because of the merger. However, this enhance wouldn’t be uniform. Freedom would decrease its costs by greater than 15%, whereas Bell and Telus would depart theirs primarily unchanged. Solely Rogers would enhance costs by any important quantity (12.1% in British Columbia and 9.6% in Alberta).

Nonetheless, these predictions have been “not dependable and considerably overstated” and “extremely uncertain,” the Tribunal discovered. Roger’s knowledgeable had “persuasively demonstrated” that when sure shortcomings have been addressed, the Commissioner’s mannequin wouldn’t predict materials value will increase.

Whereas the Tribunal didn’t comment on it, it appeared inconceivable that Rogers might efficiently increase its costs by as much as 12%. The truth that its closest rivals, Bell and Telus, weren’t elevating their costs makes it unlikely that Rogers might increase its costs with out bleeding subscribers.

Repair it first?

This case marks plenty of firsts within the Canadian merger assessment. It’s the first time {that a} merger has been litigated pre-closing. It’s also the primary time that the case has centered on a proposed treatment, that’s, the place events “litigated the repair.”

The choice additionally confirms that the tribunal is not going to analyze hypothetical transactions. Thus, if events materially change their deal earlier than the case goes to trial, the tribunal will take a look at the deal as it’s structured on the time of trial.

This doesn’t imply events will modify their mergers on the courthouse steps, because the Commissioner appears to worry. Rogers and Shaw agreed to divest Freedom to Videotron simply over a month after the Commissioner filed his utility. Had they waited till simply earlier than trial, the Commissioner would have been entitled to an adjournment with a purpose to modify his case to fulfill the brand new actuality.

Events to mergers that clearly increase competitors points are greatest suggested to repair it first. That’s to say, incorporate a repair into the deal earlier than submitting a notification with the Competitors Bureau, not after the Commissioner challenges it.

The Commissioner’s Attraction

The Commissioner’s attraction is scheduled to be heard on January 24, 2023. For our prediction on the end result of this attraction, see Commissioner’s attraction of Rogers-Shaw determined prone to fail.

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