The two Canadian investment banks that acted as financial advisers in Corus’ $2.65-billion acquisition of Shaw Media took opposite approaches to how their research desks have covered the proposed transaction, that has been opposed by a minumum of one Corus minority investor.
Catalyst’s opposition to Corus-Shaw Media deal questioned by investors, analysts
The motives fuelling a minority shareholder’s attempt to thwart Corus’s $2.65 billion purchase of Shaw Media were called into question Friday, as Catalyst Capital Group Inc. aired its concerns about the proposed sale on a business call with investors and analysts.
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Equity analysts at RBC Dominion Securities Inc., which acted for Corus Entertainment Inc., published research notes on Feb. 12 that offered a favourable opinion of the offer and analyzed the outlook for Corus and Shaw Media’s parent company, Shaw Communications Inc. In contrast, analysts at TD Securities Inc., which was hired by Shaw, have been prohibited from releasing any comments concerning the companies for an unspecified period of time.
Both banks are in position to generate millions in fees should the deal close.
The related-party transaction requires more than half of Corus’ minority investors to vote in favour of it either before or at a special meeting, which is held on March 9. It means shareholders can nonetheless be persuaded by research reports from brokerages and shareholder advisory research companies.
Private equity firm Catalyst Capital Group Inc., which specializes in distressed debt situations, has raised questions about Corus’ lack of disclosure within the management information circular, which was published on Feb. 9, and the $2.65-billion cost – a figure it contends is really as much as $858 million too high.
For the worldwide research industry, that has been plagued by concerns over potential or perceived conflicts associated with investment banking clients, preserving autonomy is crucial.
To assist in managing actual or perceived conflicts of great interest, RBC and TD say they abide by strict internal policies that protect the independence of their research divisions. Certainly one of the tools that’s employed is a virtual and physical barrier that restricts and monitors the flow of information between the research and investment banking sections.
Both RBC and TD maintain internal policies that forbid their research analysts from speaking to reporters. Official spokespeople offered limited explanations via email.
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“At the time of publication, neither Corus nor Shaw were restricted,” said Gillian McArdle, a spokeswoman at RBC. “Restricted” implies that analysts are banned from publishing research. “We have comprehensive policies and procedures in position which govern the publication and distribution in our research.” She didn’t say why the businesses weren’t on the restricted list, or maybe and when the happy couple could be put back on this type of list.
In their notes, RBC’s analysts updated their estimates for companies and decreased their price target for Corus’ class B shares to $12 from $13 “carrying out a duration of research restriction.” They commented around the merits and pitfalls from the deal, calling it “an interim solution” in today’s slumping media environment.
“Our look at the Corus-Shaw Media transaction is relatively balanced,” one research note reads. They write the combination “results in a stronger company with meaningful scale along with a ‘right to win’ inside a maturing broadcasting industry.” But they also explain some risks, too, including the lingering uncertainty around channel unbundling, a softer ad market and the “relatively high leverage” that Corus will have to pay it off.
But some are questioning RBC’s decision to publish their reports before the March 9 shareholder vote. Even though its research and investment banking arms are distinct, positive analysis could be seen as conflicted.
“It might have been prudent for RBC to haven’t issued any investment reports to prevent any appearance of the conflict of interest,” Laurence Booth, a corporate finance professor in the University of Toronto’s Rotman School of Management, said.
“When you start referring to compliance, the question isn’t whether it this really is legal or illegal activity, but a question of whether a bank really wants to get involved with some kind of questionable activity that may play out poorly in the court of public opinion. That’s the task from the bank.”
In contrast, TD says it hasn’t published concerning the deal because it’s material to an investment banking client.
“TD Securities includes a policy to restrict analyst research on clients involved with a transaction deemed material towards the clients,” said spokeswoman Alison Ford. When asked what is the basis for this policy, she pointed to an Ontario Securities Commission policy that “provides general guidelines that registrants may decide to consider” for crafting policies and operations for safeguarding inside information about an issuer.
The OSC shows that a registrant “should normally” move an issuer’s name to some restricted list when their relationship continues to be disclosed to the market, but the bank might be in possession of or could access material knowledge during the period of a transaction.
The guidelines state that in this case, the dissemination of research materials about the issuer’s securities “should be restricted or stopped.” It says that a company “should normally” be moved from a small research list after any inside information is disclosed to the market “following completing a distribution or a merger or acquisition.”
Ford declined to elaborate on why a study restriction have been initiated or when its institutional clients can get it to be lifted. “I can’t read the details,” she explained. “It would be inappropriate to publicly discuss our internal policy. Our internal policy is within place using the best interest of our clients in your mind.”
Financial Post
cpellegrini@nationalpost.com
