Rogers Faces Probe of Network Failure as Shaw Investors Shaken

(Bloomberg) — The network failure at Rogers Communications Inc. will be investigated by Canada’s telecommunications regulator, heaping more pressure on the company as its tries to gain approval of its acquisition of Shaw Communications Inc.

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Rogers Chief Executive Officer Tony Staffieri and other telecom executives met Monday with Canadian Industry Minister Francois-Philippe Champagne in the aftermath of a network collapse that shut down wireless and internet service for 12 million people. The problems, which began Friday, affected access to 911 emergency services, financial payment systems, government offices and even caused the postponement of events such as a concert by The Weeknd.

Champagne said the Rogers network failure was “unacceptable” and that immediate steps were needed to fix reliability issues. The minister ordered companies including Rogers, BCE Inc. and Telus Corp. to reach agreements on emergency roaming and mutual assistance during outages and said there would be a probe of the events by the communications regulator, the Canadian Radio-television and Telecommunications Commission.

Staffieri apologized again and defended his company’s C$20 billion ($15.4 billion) proposal to buy Shaw as a way to improve the communications system. The company has said the transaction will free up capital for network investment.

“We very much remain committed to the Shaw transaction,” Staffieri said Monday in an interview on BNN Bloomberg Television. “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.”

But the shares of both companies tumbled as investors grow more concerned that the deal could fall apart. Champagne’s department has the final say on approvals the transaction.

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Shaw fell 4.3% to C$34.67, its lowest close since June 17 and 14% below the Rogers takeover offer of C$40.50 a share. Rogers fell 4.6%.

“This is a significant test for the leadership of the Rogers organization,” Robert McFarlane, former chief financial officer of Telus, said on BNN Bloomberg. “They need to take concrete actions so it never happens again. And they need to compensate or do actions that engender loyalty.”

The country’s antitrust body, known as the Competition Bureau, opposes the Shaw deal and Friday’s outage could provide the regulator with more ammunition in its battle to stop the merger.

The “unprecedented” failure “is likely to introduce incremental regulatory risk to the Shaw transaction, heightens investor concerns regarding Rogers’ ability to execute on deal synergies and counters a constructive industry narrative on network performance,” BMO Capital Markets analyst Tim Casey said in a note Monday.

Casey estimated Rogers will take a C$70 million hit to revenue and to earnings before interest, taxes, depreciation and amortization in the third quarter because of the problems. He lowered his estimate for revenue and Ebitda by C$150 million this year and next.

(Updates with new information from first paragraph.)

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