Shaw Communications: The Next Canadian Telecom Takeover Target?

Membership in a sector that is taking customers from phone companies, the offer of a ‘triple play’ of phone, cable and Internet services, as well as healthy profit growth numbers.

What’s not to like about Shaw Communications Inc. (SJR), except perhaps its climbing valuation?

And with the healthy dose of speculation currently floating around about private equity groups and the scope of Canadian telecom companies that maybe takeover targets, Shaw is a worthy discussion topic.

BCE Inc. (BCE) could make a C$12-billion takeover bid for Shaw as a potential defense against private equity suitors, according to Canaccord Adams analyst David Lambert.

He has a “buy” rating on Shaw shares and hiked his price target to C$55, which represents upside of roughly 20%.

Given the recent interest in Canadian telecom companies from private equity groups, Mr. Lambert thinks Shaw could become a strategic option for both BCE and Rogers Communications Inc. (RG).

Despite Rogers’ better financial positioning for a possible bid for Shaw, Mr. Lambert thinks BCE’s ability to make a cash offer would help it win such a battle. This hypothetical cash and stock deal, would see BCE assume C$3-billion of Shaw’s debt.

He also sees both revenue and costs synergies, as well as C$275-million in tax savings. Meanwhile, Mr. Lambert projects a deal could give BCE a wireless market share boost from less than 10% to more than 33% in Western Canada.

Meanwhile, analysts at Merrill Lynch and UBS remain “neutral” on Shaw following the company’s strong second quarter results and dividend increase.

UBS has a C$45 price target on the stock, while Merrill hiked its projected fair value C$1 to C$48.