The Acquisition of Fido by Rogers

This paper will discuss the acquisition of Microcell’s Fido brand (Fido) by Rogers Wireless. The key points that will be discussed are: How the companies were before and after the acquisition (financially), if the merger beneficial, what was the share price for each company before the merger and what was the price of Rogers Wireless after the merger. Why the acquisition took place, and if Rogers Wireless created value will also be discussed.

Before the Acquisition

Mircocell, which previously owned Fido, was the fourth largest wireless provider prior to Fido’s acquisition in November 2004. Fido had 1,293,800 customers (Blundon, Stephen, 2004) and generated revenues of $538 million (Microcell Annually and Quarterly report, 2004).

Rogers Communication Inc. (RCI) is a diversified Canadian communications consisting of Rogers Wireless, Rogers Cable and Rogers Media, each of which is wholly-owned subsidiaries of RCI. In 2004, Rogers Wireless had 3.8 million subscribers and generated revenues of 2,784 million by the year end of 2004.

After the Acquisition

After acquisition of Fido, Rogers Wireless Inc. became Canada’s largest wireless voice and data provider and the choice of nearly 5.7 million of subscribers as of November 2004 (2004 Annual Report, p16).

Benefits of the Acquisition Fido by Rogers Wireless:

From the point of view of the customers, the only benefit of the acquisition of Fido is that Fido customers have a bigger phone network which operates across Canada. For those areas that Fido customers did not have access to before, they can now use the Rogers network. As a result of the acquisition, the network coverage will become larger after the two companies amalgamate the phone network. Beside the larger network, all the individual customers will keep their existing plans with the existing pricing. Customers cannot switch service plan between Rogers and Fido.

In Roger’s point of view, the acquisition of Fido has given them one of the most important positions in this young adult market. They can provide more options for the consumers to choose and increase the number of wireless carrier up to 5.7 million customers. As a result, the company’s revenue will eventually increase. The more optional service plans that Rogers can provide, the better the chances that Rogers can lead in the market.

In addition, the current discount wireless services plan from Fido can also lead the market to become more competitive. For example, the most recent service plan for Fido is CityFido. The plan offers the customer one prices for unlimited calls for a month. The result of the plan directly affects the landline market in Vancouver (Telus), Toronto, and Montreal (Bell). As a result, the landline prices might drop slightly in order to keep the exciting customers and be more attractive to get the people back from using CityFido. In conclusion, Rogers Communications Inc. does not only play an important role in the wireless communication market but it is also a competitor for the landline market across Canada.

Share Price before the Acquisition:

In November 2004, Rogers stock (RCI on the NYSE) was trading at approximately $32.00 per share. At that time Fido’s (Microcell’s) shares were trading for $34.55 per share on the TSX.

Share Price after the Acquisition:

Roger’s stock price started to rise after the acquisition of Fido and hit a peak in February 2005 at $40 per share. As of April 26, 2005 it is currently trading at $38 per share. With Fido being acquired, those shares are no longer traded as they were bought out by Roger’s wireless at a price of $35.00 per share.

Why did Rogers Acquire Fido?

From Fido’s standpoint there were a few reasons that this was a valid option for them. Fido’s history has shown that they have a large customer turnover (every three months). Their research has indicated that a major reason is “…its inferior network, which was restricted mainly to large cities” (globeadvisor.com). The CEO for Fido was quoted “…if he could bring Fido's customers onto Rogers's expansive network - which reaches 93% of Canadians - he could cut churn and make the acquisition pay” therefore a win-win situation for Rogers & Fido.

Rogers has a different view on how they could benefit from this acquisition.

Rogers saw an opportunity to make use of Fido's radio frequencies, the real estate of the wireless business. Fido would give Rogers extra capacity over