Rejects newspaper report on investor Catalyst Group concerns
TORONTO – Late Tuesday, Corus Entertainment slammed a newspaper report which quoted one of the company’s shareholders saying it had serious concerns over disclosure of information to minority shareholders currently deciding whether or not to support the $2.65 billion purchase of Shaw Media.
Corus issued a press release saying the National Post story featured “a number of misleading claims by The Catalyst Capital Group (“Catalyst”) regarding Corus’ proposed acquisition of Shaw Media Inc. (“Shaw Media”).”
The release then re-stated the company’s belief that the acquisition is “a game-changing opportunity to generate long-term value for shareholders, while being immediately accretive on an earnings-per-share and free-cash-flow-per-share basis. The acquisition, which will create a powerful, integrated media and content company with the scope and scale to compete effectively, is expected to provide Corus with the free cash flow to pay down its outstanding debt while maintaining Corus’ current dividend of $1.14 per Class B share,” reads the Corus release.
Corus says the benefits of acquiring Shaw Media has been recognized by Institutional Shareholder Services (“ISS”), “a leading independent proxy advisory firm which provides voting recommendations to institutional investors.” In its recommendation, “ISS concluded that ‘the strategic rationale behind the transaction appears appealing’ and that ‘the offer consideration to be paid by Corus to Shaw appears fair for both parties’.
“Corus categorically rejects Catalyst’s deeply misleading allegations” and highlighted the following problems with the article (which are directly quoted from the Corus release):
• The allegation that the Shaw family stands to gain between $50 million to $62 million from the transaction is unfounded. Catalyst alleges that the Family has gained $40 million from the relative fluctuations in the trading prices of the Corus and Shaw shares on the TSX since the announcement of the acquisition. Obviously, the Family cannot predict, nor is responsible for, market fluctuations in the share prices of the two companies. Catalyst’s other allegations with respect to the balance of the gain are similarly without merit. The subscription receipt offering and the related Shaw family concurrent private placement, were both priced with our underwriters in the context of the market, following a full public marketing process, at a 3.6% discount to the closing price of the Class B shares on the Toronto Stock Exchange (“TSX”) the night before pricing. This is well within the acceptable range for public financings and was approved by the TSX on that basis. The Shaw family’s participation in the offering was an important demonstration of its commitment to the future of Corus. Contrary to Catalyst’s allegations, neither the subscription receipts nor the associated concurrent private placement were priced or completed before the Acquisition was announced.
• Catalyst’s “internal calculations” of the fair market value for Shaw Media appear to be based on flawed and ill-informed assumptions that are simply not credible. At the meeting between Catalyst and Corus management on February 16, 2016, Catalyst said that they had “calculated” that Corus was overpaying for Shaw Media by $150-$200 million. Corus was not provided with a written copy of the “calculation”. That number has since arbitrarily risen to $400-$600 million. Corus is confident in the independent formal valuation and fairness opinion provided by Barclays Capital Canada Inc., which determined the fair market value for Shaw Media to be in the range of $2.45-$2.85 billion, based on extensive analysis including discounted cash flow analysis and comparable precedent transactions in the broadcasting sector in Canada and the United States.
• Catalyst’s concerns over a reverse break fee, which they had previously characterized to Corus as “outrageous” and “highly illegal”, are unfounded and appear deliberately staged to generate confusion. If shareholders vote not to proceed with the transaction simply because they don’t like the deal, there is no break fee or expense fee payable to Shaw.
• The transaction governance process has been careful, diligent and thorough. A Special Committee of independent directors, with its own independent legal and financial advisors, was established to oversee and assess the merits of the transaction. The Special Committee met 28 times over the course of a rigorous, four-month negotiation process. As part of the oversight process, an independent formal valuation and two fairness opinions were obtained from leading financial institutions in support of a fair acquisition. Each of these supported the terms of the Acquisition. In sum, Corus stands behind both the robust process and the extensive disclosure provided to shareholders in related to the Acquisition.
One Bay Street analyst came down on the side of Corus in an investor’s note this morning. “In our view, a modest premium valuation for Shaw Media appears justified,” wrote Canaccord Genuity’s Aravinda Galappatthige. “We believe that Catalyst may be trying to lower the price being paid for Shaw Media, as Catalyst believes that Corus is overpaying by $400-600M ($2-3/Corus B share)… In our view, a modest 1x premium is justified given that Corus' organic EBITDA has been declining by mid to high-single digits, whereas Shaw Media has been posting flat to modest declines.
“We believe that some of Catalyst’s claims appear questionable,” Galappatthige continued. “While it is true that the Shaw family benefited from a 3.6% discount on the private placement of Corus B subscription receipts, so have other investors who participated in the subscription offering. In addition, Shaw is not simply being given dividends by Corus, it is paying $32M for them… as part of the aforementioned private placement. Finally, Catalyst points to concerns regarding the reverse break-fee payable to Shaw if the transaction is not completed. However, this is fully disclosed in Corus’ information circular and only appears to be triggered under the condition that Corus receives a takeout bid itself.”
While the company deals with this, many others have filed objections to the deal with the CRTC. Read that story here.
