By Divya Rajagopal

TORONTO, Reuters – Canada’s Competition Bureau had blocked Rogers Communications’ C$20 billion proposal (NASDAQ:) to purchase Shaw Communications (NYSE.). However, due to its poor track record in legal disputes, it raises concerns that Shaw Communications could be approved with further concessions.

The deal was rejected by the agency last week. It would have been detrimental to competition in the country, which has the most expensive wireless rates anywhere. In Canada, anger at high prices has led to the Liberal government promising to lower prices.

The proposed divesture by Shaw of Calgary’s wireless company Freedom Mobile was also rejected by regulators who deemed it insufficient to resolve competition concerns. The bureau has data that shows the three major Canadian telecoms companies – Rogers (NYSE:) Inc, Telus (NYSE;) – could charge more in dominant markets and hopes to prevail in its Competition Tribunal challenge.

The Competition Bureau’s history of regulatory victories is a little skewed, however. Out of more than 1,500 reviewed mergers since 2009, eight were rejected. Six cases were settled or lost. Two more are currently pending.

According to a specialist in anti-competition litigation, “The bureau is more often unsuccessful in winning such cases,” stated a lawyer. Due to the sensitive nature the issue, he declined to name the individual. The majority of companies settle matters by entering into a consent arrangement or using the efficiency defense in court.

In 69 cases that were brought to the Tribunal in the last 13 years, consent agreements (which are a form or dispute resolution) were reached.

The agency did not speak to its record but said it does negotiate a solution or challenge any merger that could harm Canadian competition.

Section 96 of federal Competition Act has been used by many companies to defend deals. Lawyers stated that mergers have created efficiencies which outweigh anti-competitive effects. Rogers is a multi-billionaire with large holdings in wireless communications and mass media. Two additional lawyers who are not part of the case say that Rogers could defend its efficiency to the tribunal.

Toronto-based firm said that it is ready to defend the transaction in front of the tribunal. It will also file a formal reply to the Competition Bureau injunction.

Rogers also promises to speed up the network’s development in rural Canada and expand its combined coverage. It will also enter markets with only one provider.

However, investors are still cautious due to the uncertainty surrounding the Rogers-Shaw tie up. Shaw shares currently trade at 16% under Rogers’ C$40.50 share price.

POSSIBLE REMEDIES

According to analysts and lawyers, the deal is likely to be approved if Rogers Shaw presents a plan which goes far beyond the demonetization of Freedom Mobile. According to a lawyer who practices in antitrust cases, “it comes down to which merger remedies companies are willing to present to avoid lengthy litigation processes.”

Lawyers point to a 2017 agreement in which Bell and the Competition Bureau reached a consent arrangement to sell their six retail outlets, 24,700 subscribers, 40 MHz of spectrum and to sell them to Xplornet. This was in preparation for approval by Manitoba Telecom Services to acquire Manitoba Telecom Services. Cormark Securities stated in a note that Shaw’s wireless company could be sold to Quebecor. Quebecor is a Montreal-based telecoms and media company, which primarily serves Quebec.

A Canadian source informed Reuters that Quebecor has been identified as a possible buyer for Freedom Mobile by the federal government.

Pierre Karl Peladeau, Chief Executive Officer of Quebecor said that “the opportunities are numerous and the options promising”, referring to Shaw’s potential acquisition.

($1 = 1.3030 Canadian dollars)