CORUS PAYING TOO MUCH: CATALYST

Shaw Media deal overpriced by up to $858M, minority shareholder argues

A minority shareholder is now claiming that Corus Entertainment Inc. is paying up to $ 858 million more than it should to acquire related company Shaw Media Inc. and has proposed a set of new terms that it says it would be willing to accept.

Two market regulators have been urged to review whether enough informat i on about Corus Entertainment Inc.’ s proposed $ 2.65- billion acquisition of Shaw Media Inc. has been publicly disclosed to allow minority shareholders to make an informed decision

In a presentation r eleased Thursday, Catalyst Capital Group Inc. said that Corus could increase t he value of its minority shares by between 23 and 107 per cent, or up to $ 10.50 a share, if it decided to renegotiate the terms of its proposed $ 2.65- billion transaction, which is for $ 1.85 billion in cash and $ 800 million in stock.

Catalyst had initially calculated that Corus was overpaying for Shaw Media by as much as $ 600 million, including synergies, in a presentation it made to Corus management on Feb. 16. In its new valuation, the private equity firm employs a lower adjusted multiple to measure Shaw Media’s enterprise value.

Corus disputed the $ 600- million f i gure on Tuesday and pointed out that Catalyst had originally said that Corus overpaid by up to $ 200 million. “Catalyst’s internal calculations on the fair value for Shaw Media appear to be based on flawed and ill- informed assumptions that are simply not credible,” it declared.

In an email Thursday, Corus spokeswoman Sally Tindal said that the Shaw Media deal was heavily negotiated over a period of four months using special committees, adding that two separate fairness opinions were considered. Both deemed the purchase price of $ 2.65 billion to be fair.

In a research note published Wednesday, analysts at Canaccord Genuity quest i oned t he claims being made by Catalyst and wondered whether they would have any influence on the shareholder vote.

“We are unclear of Catalyst’s motive at this time and wonder if its arguments will hold much sway with Corus’ public shareholders,” the note stated.

They wrote that Corus paying “a modest premium valuation” for Shaw Media “appears justified” since Shaw Media is posting flatto-modest declines in organic earnings before certain costs ( EBITDA), whereas Corus’ results have been falling in the mid-to-high single digits.

Catalyst, a private equity firm that specializes in distressed situations, is also taking issue with how Corus plans to finance the deal, and it is suggesting that the company issue fewer shares to reduce dilution and declare a special dividend, among other requests.

Catalyst is asking that Corus reschedule the Mar. 9 special meeting and publish a revised circular that contains “full and clear disclosure of all material facts that have not been provided in the current circular so they can make an informed decision,” the company said in a statement.

The bulk of the voting shares of Corus and Shaw are controlled by JR Shaw through the Shaw Family Living Trust. Since this deal is between related parties, Corus requires the approval of at least half of the votes cast by its minority share- holders. Last week, Catalyst urged two securities regulators to review whether enough i nformation had been disclosed to investors, most notably that it believes the Shaw family stands to gain at least $50 million as a result of its controlling interest in both companies.

“While this may be a good deal for the Shaw family, it is a bad deal for every Corus minority shareholder,” said Gabriel de Alba, Catalyst’s managing director and partner. “Catalyst has asked Corus simple questions on behalf of all shareholders, only to be met with secrecy and a steady stream of misleading information.”

De Alba said that “the speed at which they are trying to push through this transaction” is cause for concern. This deal was announced close to a month after Shaw agreed to acquire Wind Mobile Corp. for $ 1.6 billion.

Corus also said Thursday that it is postponing its proposed high- yield debt offering “until market conditions improve.” Corus planned to raise up to $ 300 million in bonds to replace some of the other committed credit facilities related to the transaction, which continue to remain in place. Sources say that the bond market was demanding terms for this offering that exceeded the amount Corus was willing to pay.

Class B shares of Corus fell 0.7 per cent Thursday to $ 9.87. Since Corus announced the acquisition on Jan. 13, its stock has plunged 16 per cent and now trades at a 56 per cent discount to the 52- week high it reached last February. Its quarterly dividend of nine cents per share is yielding more than 11 per cent.

(THIS) IS A BAD DEAL FOR EVERY CORUS MINORITY SHAREHOLDER.