Shaw to use cash to fund Wind buy; Corus scales up for pick and pay
TORONTO – While many often assumed the opposite would happen, Corus Entertainment and Shaw Communications this morning announced the former would buy the latter’s media properties for $2.65 billion.
The two companies have been planning the transaction for a while. “For a few months now, we’ve been hard at it,” Corus CEO Doug Murphy told Cartt.ca Wednesday in an interview. “Many felt it might go the other way, but the industrial logic, if you would, of bringing these two businesses together make a lot of sense and in the context of where Brad (Shaw, CEO of Shaw Communications) wants to go with Shaw, it makes a lot of sense to bring the media assets inside Corus. So, the Shaw family now has a network and distribution company and soon-to-be-wireless; and a large and prosperous media and entertainment company with aspirations to grow.”
Both companies are controlled through dual share structures by Calgary’s Shaw family. According to the press release Wednesday morning that went out along with Corus’ Q1 results, the transaction “significantly enhances Corus' financial profile,” generating about $1.9 billion in revenues, $619 million in adjusted EBITDA and approximately $430 million of free cash flow.
It will also entrench Corus as the Canadian category leader in women, kids and family media. The combination is expected to generate $40-$50 million of annual cost synergies, too, so there will be more media layoffs in the coming year, although there are no specifics on that, yet.
The purchase price is to be paid through a combination of cash and Corus Class B shares and will give Corus a combined portfolio of 45 specialty television channels, 39 radio stations, digital assets, the content studio, Nelvana, and 15 conventional television stations.
"This is a transformational acquisition that redefines Corus and Canada's media landscape," said Murphy, who added the transaction will not trigger any CRTC benefits payments. Normally, when broadcasting entities are sold, the new owner must establish funding for new programming (up to 10% of the purchase price for television), according to Commission regulations.
However, there is "no change in control, no proposed changes in Shaw Media license," Murphy told financial analysts during a conference call Wednesday, so there are no CRTC benefits to be paid. (Ed note: We expect a regulatory battle on that front, if our in-box and Twitter DMs are any indication.)
“The CRTC has been considering us as part of Shaw Media and Shaw for some time because all roads lead to JR in that regard,” added Murphy in an interview, explaining why there will be no benefits package.
Barbara Williams, currently executive vice president, broadcasting and president, Shaw Media, will join Corus in a senior leadership capacity upon the closing of the transaction, it was also announced.
The massive cross-promotional capabilities is a key feature of the transaction, added the CEO, noting Corus has transformed into a “hyper-focused, disciplined audience machine” providing millions of women and children viewers. “We reach women in large households more than anybody else – and that’s where the money is,” he added. It’s co-viewing – essentially moms watching TV with their kids – where Corus is very strong.
“Pacing year-over-year is solid. It’s up and it’s encouraging because we haven’t seen this for a couple of years.” – Doug Murphy, Corus
As well, Murphy said he is heartened by a somewhat stronger ad market of late, and he’s not alone. While he doesn’t want to let himself get too carried away, “because maybe it’s just been so crappy for so long that I’m getting excited about it,” he has spoken with his contemporaries at Rogers Media and Bell Media about what they are experiencing. “They were also telling me they are seeing what we’re seeing and… the visibility is still low but the pacing year-over-year is solid. It’s up and it’s encouraging because we haven’t seen this for a couple of years.”
Adding scale like this will also be important as the CRTC's new TV regulations come into force in March, but Murphy believes his company is now well-positioned for the changes. “The CRTC needed push the system into offering more choice and personally, I think the CRTC made the right call here and I think Corus is going to thrive in this new environment.”
If carriers build new or different theme packages of lifestyle channels geared towards women, for example, Corus is now all over it with W, HGTV, Food and others. Same goes for drama and kids. “It does matter that we have a larger scale offering in this Let’s Talk TV world," he added.
"This transaction represents a significant milestone for Shaw, firmly positioning the company as a leading pure-play connectivity provider with an attractive growth profile while allowing Shaw to participate in the significant upside potential resulting from the combination of Shaw Media and Corus," said Shaw Communications CEO Brad Shaw. "With the previously announced acquisition of Wind and sale of Shaw Media, Shaw will be focused on delivering consumer and small business broadband communications supported by its best-in-class wireline, Wi-Fi and wireless infrastructure. In combination, these transactions will also enhance Shaw's growth profile, with approximately 25% of total revenue derived from growth services."
Shaw will use the cash from this sale to fund the purchase of Wind Mobile, announced just before Christmas.
"We believe these two companies will form a winning combination,” said founder JR Shaw in the press release. He is the controlling shareholder of both companies. “Their complementary mix of assets and strong management teams fit extremely well together… This transaction represents an exciting new chapter and allows us, as a family, to participate in what we see as a very successful future for Corus, one that will support a vibrant Canadian broadcast system."
The Canadian Media Producers Association is not exactly pleased with the decision, calling for the CRTC to again re-examine Terms of Trade between producers and broadcasters because the group says this new deal will lead to an “imbalanced marketplace.”
“I have been aggressively talking about Terms of Trade because I don’t think you can put ‘one size fits all’ on innovation. That, to me is antithetical." – Murphy
“I have been aggressively talking about Terms of Trade because I don’t think you can put ‘one size fits all’ on innovation. That, to me is antithetical,” said Murphy in our interview. “What we want to do is pick the best producers, and I’ll guarantee you that there will be lots of commissions coming out of Canada on Corus Entertainment… because we want to make Cancon and we want to make content we can sell globally.”
Shaw Media's assets include the specialty channels Food Network Canada, HGTV Canada, DIY Network Canada, Slice, Lifetime, History Canada, H2, Showcase, National Geographic Canada, Nat Geo Wild Canada, Action, MovieTime, IFC Canada, Global News: BC1, BBC Canada, DejaView, Crime + Investigation, DTOUR and FYI. It also includes Global Television's national conventional service with stations in Vancouver, Okanagan, Edmonton, Calgary, Lethbridge, Saskatoon, Regina, Winnipeg, Toronto, Montreal, Halifax and Saint John. Shaw Communications will retain its 50% interest with Rogers in viewing portal shomi.
Officially, reads the release, “Corus has agreed to acquire 100% of Shaw Media for a total purchase price of $2.65 billion, representing a multiple of ~7.7x FY2015 consolidated reported adjusted EBITDA. Upon closing of the transaction, SCI will receive ~$1.85 billion in cash and ~71 million Corus Class B Shares at $11.21 per share, which is based on current volume weighted average trading prices on the Toronto Stock Exchange.”
The acquisition and the refinancing of existing Corus debt will be funded with $2.3 billion of committed credit facilities and $560 million of bridge financing. The bridge financing is expected to be replaced with a combination of new senior unsecured notes and a potential offering of subscription receipts for Corus Class B Shares.
Once the sale is complete, Shaw Communications will own approximately 39% of Corus' total issued equity, including class A and B shares and has agreed to hold and not sell any of its Corus Class B Shares for the first 12 months following closing.
The transaction is subject to CRTC approval as well as by more than 50% of the votes cast by Corus' Class A Voting and Class B shareholders, excluding those held by JR Shaw, the Shaw Family Living Trust and their affiliates. The companies expect transaction to close in the third quarter of fiscal 2016 (end of May), which is also when Shaw's Wind purchase is expected to close.
Once the deal is done, Murphy says his top job will be de-leveraging – or cutting the new debt the company is taking on to finance the acquisition. “The most immediate focus right now is a quick and effective integration,” he said, “building the best team in the business from two great teams already, achieving our synergy targets and getting our debt back below 3x (EBIDTA).
“From there, we will look to grow – and it will be more on the content side than the media asset side.
