Corus is overpaying for Shaw Media by $858 million, minority shareholder argues

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

Corus minority shareholder urges regulators to examine ‘serious’ disclosure concerns in Shaw Media deal

Two market regulators have been urged to review whether enough information about Corus Entertainment Inc.’s proposed $2.65-billion acquisition of Shaw Media Inc. continues to be publicly disclosed to allow minority shareholders to make an educated decision

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In a presentation released Thursday, Catalyst Capital Group Inc. said that Corus could increase the need for its minority shares by between 23 and 107 percent, or up to $10.50 a share, whether it decided to renegotiate the relation to 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 the new valuation, the private equity firm employs a lower adjusted multiple to measure Shaw Media’s enterprise value.

Corus disputed the $600-million you’ll need Tuesday and pointed out that Catalyst had originally asserted Corus overpaid by as much as $200 million. “Catalyst’s internal calculations on the fair value for Shaw Media seem to be based on flawed and ill-informed assumptions which are simply not credible,” it declared.

In an e-mail Thursday, Corus spokeswoman Sally Tindal said the Shaw Media deal was heavily negotiated over a period of 4 months using special committees, adding that two separate fairness opinions were considered. Both deemed the purchase price of $2.65 billion to become fair.

In a study note published Wednesday, analysts at Canaccord Genuity questioned the claims being produced by Catalyst and wondered whether they would have any affect 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 flat-to-modest declines in organic earnings before certain costs (EBITDA), whereas Corus’ results have been falling within the mid-to-high single digits.

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Shaw Communications to market Global TV network, specialty channels to Corus Entertainment for $2.65 billionCorus revenue, earnings will more than double after Shaw Media deal

Catalyst, a private equity finance firm that focuses on distressed situations, is also taking problem with how Corus intends to finance the offer, and it is suggesting that the company issue fewer shares to reduce dilution and declare a unique 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 present circular so they can make an educated decision,” the company said in a statement.

While this is usually a good deal for that Shaw family, it’s a bad deal for every Corus minority shareholder.

The bulk from 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 shareholders. Last week, Catalyst urged two securities regulators to examine whether enough information had been disclosed to investors, especially that it believes the Shaw family stands to gain a minimum of $50 million as a result of its controlling interest in both companies.



“Although this may be a good deal for that Shaw family, it’s a bad deal for every Corus minority shareholder,” said Gabriel de Alba, Catalyst’s md and partner. “Catalyst has asked Corus simple questions on behalf of all shareholders, simply to be met with secrecy and a good flow of misleading information.”

De Alba said that “the rate where they’re trying to push through this transaction” is reason to be concerned. This deal was announced close to a month after Shaw decided to acquire Wind Mobile Corp. for $1.6 billion.

Corus also said Thursday that it’s postponing its proposed high-yield debt offering “until market conditions improve.” Corus planned to raise as much as $300 million in bonds to exchange some of the other committed credit facilities associated with the transaction, which still remain in place. Sources state that the bond market was demanding terms for this offering that exceeded the amount Corus was prepared to pay. 

Class B shares of Corus fell 0.7 percent Thursday to $9.87. Since Corus announced the acquisition on Jan. 13, its stock has plunged 16 per cent and today 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 a lot more than 11 percent.