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    Merger-of-equals deal with Rogers would be ideal mix  
    Both companies could benefit as they gird to take on telecom giants  
   

Mark Evans

 
    Financial Post
Wednesday, February 08, 2006
 
   

If and when Shaw Communications Inc. decides it's time to find a suitor, the Shaw family will likely want a partner rather than a buyer.


This makes a deal with Rogers Communications Inc. the most logical scenario, even if both sides are denying they got together for an informal date or two before the holidays. A merger of equals between Rogers and Shaw makes sense because it offers the Shaw family a way to boldly position the company for the future while still giving them a major role in its operations.


Make no doubt, this would be a merger because Shaw chairman and founder JR Shaw has made it clear he's not a seller. Mr. Shaw has spent 40 years building the Calgary-based company into Canada's second-largest cable-service provider, and it does not seem likely he will just walk away from his pride and joy with a truckload of Rogers stock.


Instead, a more likely scenario will see Ted Rogers and Mr. Shaw get together for another dinner date to make a deal before they let the lawyers hammer out the final details. The new company would continue to operate in much the same way, with Rogers running its cable and media businesses in Eastern Canada and Shaw operating its cable and satellite-TV operations in the West.


The Rogers and Shaw brands will both stick around. You won't see the Calgary Flames playing their home games in the Rogers Centre West. And this will not be a Telus Corp.-Clearnet Communications Inc. deal in which Clearnet's well-known brand disappeared shortly after it was acquired in 2000.


Over time, Rogers and Shaw will meld their cable systems to maximize efficiencies and drive out operational and programming costs. The companies will also work together to create a major national phone company that will offer local service in Ontario, Manitoba, Alberta and B.C.


" This would be the dream alliance," said Iain Grant, managing director with the Seaboard Group. "It would put together the two cable dynasties so they could take on the behemoths (BCE Inc. and Telus) on an equal footing."


While Rogers appears to have the inside track on courting Shaw, it would be a mistake to discount BCE's interest. If BCE wants a strong foothold in Western Canada, it needs a deal with Shaw because its current strategic initiatives -- Bell West and Bell Mobility -- have not flourished.


BCE could structure the same kind of arrangement that would let the Shaw family run the Western Canadian business. But BCE is a different beast from Rogers. An ingrained part of its corporate DNA is bureaucracy and multiple layers of management, which doesn't seem to lend itself to Shaw's shoot-from-the-hip, maverick approach. Then again, a BCE-Shaw deal would make the Shaw family the largest single shareholder in Canada's biggest telecom company, which is not necessarily a bad place to be.


Then, there's Telus, which has been trying to reduce debt as it grows its wireless business and expands into Eastern Canada. But Mr. Grant said a Telus-Shaw deal is unlikely because the federal government would see it as anti-competitive.


The biggest questions facing Shaw are whether it needs to make a deal and, if so, how quickly it has to happen. In the short term, there is no urgency because Shaw's cable, high-speed Internet and telephony businesses are doing well.


In the long term, however, Shaw may have little choice because of its size and geographic focus to become part of a more powerful entity. One thing is clear: Shaw is not going to be sold. If a deal is going to happen -- whether with Rogers or Bell -- it will be done on terms that meet the Shaw family's financial, business and family-legacy objectives.

 


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