Analysts mull Rogers-Shaw deal impact; Twitter moves on upgrade

A pricey, debt-fueled bet on 5G and other happenings drove movement for tech and wireless players this week.

Shares in two of Canada's largest cable operators — Rogers Communications Inc. and Shaw Communications Inc. — ended the week in the black after Rogers on March 15 announced its intentions to buy Shaw in a deal valued at roughly C$26 billion, including nearly C$6 billion of Shaw debt.

Even though the companies said they expect the deal to advance their 5G deployment efforts, some credit analysts warn it could come at the expense of Rogers' rising debt load.

S&P Global Ratings credit analyst Aniki Saha-Yannopoulos, for instance, said the deal will strengthen Rogers' competitive position in Canada, giving the combined company "a national cable footprint that covers almost 60% of Canada with quad-play capability in their market." But the analyst noted that Rogers could face a two-notch downgrade on its current BBB+ long-term credit rating.

"Integration and transition risks, potential restructuring costs, and spectrum investments could result in subdued discretionary free operating cash flow and materially higher leverage in the first couple of years after closing," Saha-Yannopoulos said.

After merging, the company said they aim to invest C$2.5 billion in 5G networks across western Canada, while also investing an additional C$1 billion in connecting rural and indigenous communities to high-speed internet.

Shaw shares rose following the deal announcement, closing March 18 at $27.55 each, up almost 44% from their March 12 close; Rogers shares jumped as much as 9%, then settled slightly to close March 18 trading up 2.5% at $48.94 for the week.

Also in wireless, AT&T Inc. rose slightly this week despite a downgrade from Fitch Ratings.

Fitch Ratings on March 12 downgraded the long-term issuer default ratings of AT&T and its subsidiaries to BBB+ from A-, while also downgrading the U.S. carrier's short-term issuer default rating and commercial paper rating to F2 from F1.

The downgrade reflects concerns around AT&T's spending levels in the Federal Communications Commission's C-band spectrum auction and pandemic-driven business impacts, among other things.

AT&T Communications CEO Jeff McElfresh recently brushed off concerns that AT&T overpaid in the auction, noting the telco aims to begin deploying the first half of the 80 MHz of C-band spectrum it acquired by the end of the year. AT&T was the second-biggest spender in the auction behind Verizon Communications Inc., dishing out $23.41 billion for 1,621 licenses.

AT&T closed March 18 trading up 0.67% for the week to-date.

Turning to social media, Twitter Inc. shares popped then fizzled following a price-target boost on Wall Street.

Citi analyst Jason Bazinet in a note this week upped his price target on Twitter stock to $80 from $55 and maintained his "neutral" rating. The analyst said he is bullish that Twitter's latest investment goals could act as a tailwind for top-line growth.

Twitter in February said it seeks to at least double its total annual revenue to $7.5 billion or more in 2023, while reaching 315 million monetizable daily active users by the end of that same year.

For the just-ended quarter, Twitter's average monetizable daily active users reached 192 million, up from 152 million in the same period a year ago. Twitter's revenue for the just-ended period came to $1.29 billion, its highest-ever revenue reported in a quarter, the company said.

Twitter shares jumped by as much as 3% before closing March 18 down 2.03% for the week to-date at $66.72.