Finance News Follow us to find the latest Finance news
Two market regulators happen to be urged to review whether enough information about Corus Entertainment Inc.’s proposed $2.65-billion acquisition of Shaw Media Inc. has been publicly disclosed to permit minority shareholders to create an informed decision.
Shaw Communications to sell Global TV network, specialty channels to Corus Entertainment for $2.65 billion
Should the deal be completed, Shaw will exit the media business to become pure-play connectivity company, offering cable tv, telephone and Internet services in Canada’s western provinces, and wireless in B.C., Alberta and Ontario.
Read more
According to 2 letters filed using the Ontario Securities Commission and also the Toronto Stock Exchange late Friday, Catalyst Capital Group Inc., a Toronto-based private equity finance firm that owns class B shares of Corus, raised what it termed “serious concerns” regarding a lack of disclosure within the notice of special meeting and management information circular issued on Feb. 9. Catalyst said this really is “abusive of minority shareholder interests.”
Most notably, Catalyst alleged the Shaw family stands to potentially gain a minimum of $50-million from the related-party transaction as a result of its controlling interest in Corus. However there isn’t any disclosure of this information in the circular to the company’s shareholders. “This gain is highly material,” declared the private-equity firm’s five-page missive to the OSC, “-this is information that minority shareholders require in order to be capable of making a fully informed decision-“
Officials at the OSC and the TSX declined to comment Monday.
The complaints to regulators surfaced greater than a month after Corus announced on Jan. 13 that it had agreed to buy Shaw’s media portfolio for $1.85 billion in cash and $800-million price of stock. Shaw said it would make use of the proceeds to fund its purchase of upstart carrier Wind Mobile Corp. for $1.6 billion. The transactions would see Shaw, whose market cap is more than 13 times that of Corus, exit the foundering media business and realize a radio strategy that has been a minimum of eight years within the making. Meanwhile, Corus would stand to a lot more than double its profits.
In its letters towards the regulators, Catalyst also takes problem with the deal’s governance protocols. Specifically, the firm is questioning why an offer was hammered out between Corus’ management and board of directors and also the Shaw family in front of you special committee being created review the transaction, that is widely considered good corporate governance practice.
Related
- Why now may be the perfect time for Shaw to buy CorusShaw Communications to become growth story if deals approved: Scotia CapitalTransformed Shaw Communications Inc shifts its focus to becoming a pure connectivity provider
Catalyst also raised concerns about a $55-million “reverse break fee” payable by Corus to Shaw in a few circumstances, the purpose of which Catalyst alleged isn’t fully explained in the circular.
Ultimately, Canada’s second largest private equity finance firm, run by Newton Glassman, wants the OSC to make Corus to treat what it called “disclosure deficiencies” to permit minority shareholders to “make a reasonable and informed decision” before the scheduled vote on Mar. 9.
Corus spokeswoman Sally Tindal told the Financial Post, “the Company stands behind both the robust process and the extensive disclosure related to the transaction.”
Although she could not discuss Catalyst’s complaint towards the regulators, she said senior executives from the Toronto-based media company have met with representatives in the private equity finance firm in addition to more than 100 different shareholders to go over the proposed transaction and “the response has been overwhelmingly positive.”
To that end, Corus announced Monday that proxy advisory research firm Institutional Shareholder Services Inc. recommends shareholders vote in favour of the transaction.
Corus released a limited area of the report, which isn’t yet public, stating “the advantages of the transaction seem to outweigh the costs.” That recommendation is based on the mid-point from the valuation range made by Barclays Capital Canada Inc., that was retained by the special committee at Corus. Barclays figured the fair market value of Shaw Media was between $2.45 and $2.85 billion.
Repeated calls and emails to ISS requesting comment and a copy from the report weren’t returned Monday.
Corus was formed in 1999 as a spin-off from the media assets held by Shaw Communications Inc. Nearly all each of their voting shares are controlled by JR Shaw, the patriarch of the Shaw family, with the Shaw Family Living Trust.
Although the Shaw family controls 84.8 percent of the class A shares of Corus and 8.1 percent from the class B, it can’t control the voting results of related-party transactions, which is the nature from the proposed deal now before shareholders. As a result, the fate of the deal rests on the approval in excess of half of Corus’ minority shareholders, including Fidelity Investments, Mackenzie Financial Corp. and Sentry Select Capital Corp.
Shaw Communications declined to comment. Within an emailed statement, the Shaw Family Group said: “The Shaw Family respects the independence from the process and the work done by the Independent Special Committees of Corus and Shaw Communications and has no additional comment.”
Three days before dispatching their letters towards the regulators, Gabriel De Alba, managing director and partner at Catalyst, met with Corus chief executive Douglas Murphy, chief financial officer Tom Peddie, and a representative from RBC Dominion Securities Inc., which acted as investment banker to Corus and provided a fairness opinion, to voice concerns concerning the governance practices and financing of the proposed deal.
During the meeting on Feb. 16, De Alba discussed an 18-page analysis Catalyst assembled, based on freely available information. Equipped with the information, the Catalyst executive criticized the proposed transaction, arguing that in its current form, it “transfers significant value towards the Shaw family while unfairly punishing and oppressing minority holders of Corus.”
The analysis outlines Catalyst’s claim that the Shaw family created about $62 million in value from the related-party transaction: $40 million through price fluctuations in Shaw and Corus after the Shaw Media deal is made public, $10 million by buying more Corus shares in a discounted price inside a private keeping 3.56 million Corus B shares at $9 a share prior to the deal was announced (shares were trading at $11.71 at the time), and $12-million worth of dividends to be paid by Corus to Shaw as a result of Shaw’s newly bolstered position in Corus.
Based on its internal calculations, Catalyst determined that Corus is overpaying for Shaw Media by an estimated $400 million to $600 million so Shaw could fund its purchase of Wind. “They could not refute the math we given to them,” De Alba explained. He explained his firm had already sent case study to ISS and intends to distribute the analysis to Corus minority shareholders before the vote.
Catalyst is pressuring Corus to postpone the March 9 meeting, reconfigure the sale by decreasing the price and get rid of the benefits accrued towards the Shaw family from the related-party transaction.
For her part, Tindal described the Feb. 16 meeting as “quite lengthy,” adding that Corus executives “addressed all (Catalyst’s) questions in a comprehensive way.”
In an e-mail, Tindal disputed Catalyst’s criticism regarding the governance protocols saying Corus’ special committee met 28 times over the course of what she referred to “an extensive, four-month negotiation process.” She added that Barclays’ valuation of Shaw Media was based on an analysis that included an exam of 14 comparable transactions from the North American broadcasting sector.
Since the proposed acquisition was announced, class B shares of Corus have plunged 15 percent to $9.98, a level well below its 52-week a lot of $22.36. Shaw’s minority shares, in comparison, have remained relatively flat. Over the past Twelve months, both stocks have performed poorly, with class B shares of Shaw and Corus plummeting 20 and 54 per cent, respectively.
ttedesco@nationalpost.com
cpellegrini@nationalpost.com
