Crafty Rogers Plan Aims to Back Investment Firm to Buy WIND, Cutting Off Verizon

Rogers has crafted two deals to sidestep Ottawa’s wireless policies on industry mergers and prevent U.S.-based Verizon Wireless from entering the Canadian market, reports the Globe and Mail:

Rogers Communications Inc. is backing a Toronto-based investment firm, Birch Hill Equity Partners Management Inc., on a proposed acquisition of Wind Mobile, a financially struggling wireless company with about 600,000 customers across the country, according to five sources familiar with the matter.

If the plan proceeds, Birch Hill would own a controlling stake of WIND Mobile, backed by Rogers, but the latter would not get equity stake, but rather a network-sharing agreement. One source says Birch Hill has been “doing their due diligence” on how the deals would work out.

“[Birch Hill] needs a network sharing partner to make the deal happen and they’ve approached Rogers,” said one source who spoke on condition of anonymity. “For Rogers it’s all about network sharing. Data demand is growing rapidly and they’re focused on making sure they can meet future data demands.”

Sources tell the Globe Birch Hill is also looking Mobilicity led by a private-equity firm, with again Rogers as the backing partner. If such deals were to be approved by Ottawa, Bell and TELUS would surely oppose them. Moreover, Rogers would have to prove Birch Hill is not a puppet for the former to avoid being accused of sidestepping Federal spectrum transfer rules.

Rogers said “We don’t comment on rumours or speculation,” in an email statement to the Globe.

Analysts See Rogers Plan to Fail Due to Industry Regulations

Vince Valentini, analyst at TD Securities believes Industry Canada would ultimately reject the deal:

“If the amount of influence and quasi-ownership by Rogers in this new ownership structure is too significant, then we believe Industry Canada will reject it,”

“Then we are just back to the Verizon overhang.”

Dvai Ghose, head of research at Canaccord Genuity says the Rogers plan is most likely to fail at the hands of industry regulators:

“Consequently, we continue to assume that Verizon seems well positioned to acquire Wind and Mobilicity and enter Canadian wireless on favourable terms, as the Government is bending over backwards to entice Verizon to Canada.”

TELUS, Bell and Rogers have recently joined together to launch a massive PR campaign to sway public opinion to oppose Verizon from entering Canada. Yesterday Rogers issued a statement seeking to engage in talks with Ottawa for a “fair and level playing field” in the wireless sector.