SHAW TO SELL TV NETWORKS TO CORUS IN $2.65B DEAL.
Shift between family firms to cover Wind buy
Corus Entertainment Inc. said Wednesday that it has agreed to acquire Shaw Media Inc. from related company Shaw Communications Inc. for $2.65 billion in cash and Corus Class B shares.
Should the deal be completed, Shaw will exit the media business to become a pure- play connectivity company, offering cable television, telephone and Internet services in Canada’s western provinces, and wireless in B.C., Alberta and Ontario. Calgary’s Shaw said in December that it will acquire upstart Toronto carrier Wind Mobile Corp. for $1.6 billion in cash, which is funded fully by a bridge loan.
Corus will add popular television channels such as Global Television, Food Network Canada and HGTV Canada to its robust media portfolio, which already includes W Network, Cartoon Network, CMT, Disney Channel, 39 radio stations, among others. It expects to generate $40- $50 million in cost savings a year.
“This combination fits like a glove,” Corus CEO Doug Murphy told analysts. “With our highly synergistic assets, we will achieve significant operating efficiencies and gain access to new markets to drive growth.”
Shaw and Corus are a lot more closely related than most public Canadian companies.
J.R. Shaw, patriarch of Alberta’s Shaw family, controls the majority of voting shares in Shaw and Corus, a spinoff of Shaw’s media assets that was formed in 1999 and taken public, through the Shaw Family Living Trust. A separate entity, Corus says Shaw Cable is one of its largest customers.
In 2015, Class B shares of both companies performed poorly, with Shaw’s stock losing about a quarter of its value and Corus’ shedding more than half. In the weeks after announcing the Wind deal, Shaw’s shares continued to plunge, prompting some analysts to advise investors of this cheaper entry point. Shares of Shaw jumped 5 per cent Wednesday to close at $24.70, whereas Corus’ fell 7 per cent, closing at $10.78.
Corus said in a release it will pay Shaw $ 1.85 billion in cash and about 71 million Corus Class B shares at $ 11.21 a share. Accessing debt from RBC Capital Markets, Corus said it plans to fund the acquisition and refinancing of existing credit with $2.3 billion in committed debt and a $ 560- million bridge loan, which is expected to be replaced by a mix of new senior unsecured notes and a potential offering of subscription receipts for Class B shares of Corus.
Shaw can use the funds to repay the bridge loan it used to buy Wind.
With such a hefty debt load, Corus now shifts its focus to quickly de- leveraging, executives told analysts.
Ratings agency Standard & Poor’s placed Corus’ debt on notice after its credit load surpassed a threshold that’s deemed acceptable for bonds with, like Corus, a double- B- plus rating. If the transaction closes as proposed, S& P said it would likely lower Corus’ debt by one notch.
The transaction requires the approval of Canada’s broadcast regulator. The Shaw Family Living Trust has indicated to Corus’ directors its support in writing. A special committee of independent directors, which was created to oversee the review and negotiation of the deal given its relatedparty nature, unanimously agreed that acquiring Shaw Media for these terms was in the best interest of Corus and its shareholders.
Barclays Capital Canada, an independent valuator, concluded that the fair market of value Shaw Media is between $ 2.45 billion and $ 2.85 billion, as of assumptions made on Jan. 12. Corus’ purchase price settled in the middle at $ 2.65 billion. Barclays and RBC Capital Markets, which provided Corus fully committed financing in connection with the deal, said the consideration price is “fair from a financial point of view.”
Corus will convene a special meeting in March for minority shareholders, excluding J. R. Shaw, the Shaw Living Family Trust and their affiliates, to cast their vote either for or against the acquisition. Corus and the Shaw family need the approval of more than half the votes cast by Class A Voting and Class B shares.
If approved, Corus anticipates the deal to close in the third quarter of fiscal 2016, which begins in March.