By Eva Mathews and Maiya Keidan

Rogers Communications Inc said Monday it was buying Shaw Communications Inc for about C $ 20 billion ($ 16.02 billion) in a deal that would create Canada’s second-largest cellphone and cable operator, but could prompt rigorous regulatory scrutiny.

By acquiring Shaw, number four, Rogers would overtake Telus Corp and take on market leader BCE Inc in Canada’s highly competitive telecommunications industry.

Rogers, which operates in urban centers across Ontario, is also expected to take advantage of Shaw’s strong presence in sparsely populated areas of Western Canada and help it double its efforts to roll out 5G across Canada. country.

Shaw shares jumped 42% to C $ 34, but traded well below the offer price of C $ 40.50, raising doubts about the deal, which is valued at C $ 26 billion of CAN $ including debt. Rogers shares also rose 7% to C $ 64. (https://refini.tv/2OXPb4w)

“It’s really too early to speculate on the overall outcome of the regulation,” Rogers CEO Joseph Natale said on a conference call. “But we are confident that this transaction will be approved.”

The deal, if concluded, would be the largest in the Canadian telecommunications industry since BCE completed the spin-off of its Nortel Networks stake in a deal valued at C $ 88.7 billion in 2000, according to data from Refinitiv.

However, investors and analysts awaiting the deal believe regulatory risks are imminent.

“Shaw has always been considered a strong fourth player in Canada. When you talk about removing that fourth player, I see that there are regulatory risks to that, ”said Stephen Duench, portfolio manager at AGF Investments, whose company owns shares in both companies.

The deal will be reviewed by Canada’s Independent Competition Bureau, the Canadian Radio-television and Telecommunications Commission, as well as the Department of Innovation, Science and Economic Development.

Canadian Innovation Minister François-Philippe Champagne said the review would focus on “affordability, competition and innovation”.

The Canadian telecommunications industry was in the spotlight in the last federal election, with voters complaining about cell phone bills, which are among the highest in the world.

In March of last year, the minority Liberal government of Prime Minister Justin Trudeau ordered Canada’s three major telecommunications operators, which together control 89.2% of the market, to reduce the prices of their service plans by 25%. mid-range wireless within two years or face regulatory action.

True to its promise to offer affordable wireless plans, Rogers said it will not increase prices for wireless services for Freedom Mobile customers for at least three years after the deal is closed.

Toronto-based Rogers also said it plans to spend C $ 2.5 billion on ramping up 5G networks in Western Canada over the next five years following the acquisition of Shaw, based in Toronto. Calgary.

Rogers CFO Tony Staffieri said the company is not looking to sell the cable company, Cogeco, in which it has a 34% stake, or any other assets.

The deal brings together two of the country’s largest family-owned telecommunications companies, with combined annual revenue of C $ 19 billion. BCE raised C $ 22.9 billion last year, while Telus had sales of C $ 15 billion.