Two market regulators happen to be urged to examine 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 create an educated decision.
Shaw Communications to market 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 television, telephone and Internet services in Canada’s western provinces, and wireless in B.C., Alberta and Ontario.
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According to two letters filed using the Ontario Securities Commission and the Toronto Stock market late Friday, Catalyst Capital Group Inc., a Toronto-based private equity 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 at least $50-million in the related-party transaction as a result of its controlling curiosity about Corus. However there isn’t any disclosure of the information within the circular towards the company’s shareholders. “This gain is highly material,” declared the private-equity firm’s five-page missive towards the OSC, “-this is information that minority shareholders require in order to be able to make a completely informed decision-“
Officials in 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 decided to buy Shaw’s media portfolio for $1.85 billion in cash and $800-million worth of stock. Shaw said it would use the proceeds to fund its acquisition 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’s been a minimum of eight years within the making. Meanwhile, Corus would are in position to more than double its sales and profits.
In its letters towards the regulators, Catalyst also takes issue with the deal’s governance protocols. Specifically, the firm is questioning why a deal was hammered out between Corus’ management and board of directors and also the Shaw family in front of you special committee being established to review the transaction, that is widely considered good corporate governance practice.
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Catalyst also raised concerns in regards to 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 firm, run by Newton Glassman, wants the OSC to make Corus to remedy what it really called “disclosure deficiencies” to allow 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 associated with the transaction.”
Although she couldn’t comment on Catalyst’s complaint to 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 a lot more than 100 different shareholders to discuss 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 towards the transaction.
Corus released a restricted area of the report, which isn’t yet public, stating “the benefits of the transaction appear to outweigh the expense.” That recommendation is based on the mid-point from the valuation range prepared by Barclays Capital Canada Inc., which 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 along with a copy of the report were not returned Monday.
Corus was formed in 1999 like a spin-off from the media assets held by Shaw Communications Inc. The majority of each of their voting shares are controlled by JR Shaw, the patriarch from the Shaw family, through the Shaw Family Living Trust.
Although the Shaw family controls 84.8 percent of the class A shares of Corus and eight.1 percent of the class B, it can’t control the voting outcome of related-party transactions, which is the nature of the proposed deal now before shareholders. As such, the fate of this deal rests on the approval in excess of 1 / 2 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 it has no additional comment.”
Three days before dispatching their letters to the regulators, Gabriel De Alba, md and partner at Catalyst, met with Corus leader 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 from the proposed deal.
During the meeting on Feb. 16, De Alba discussed an 18-page analysis Catalyst assembled, according to publicly available information. Equipped with the data, the Catalyst executive criticized the proposed transaction, arguing that in the current form, it “transfers significant value to the Shaw family while unfairly punishing and oppressing minority holders of Corus.”
The analysis outlines Catalyst’s declare 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 was made public, $10 million by buying more Corus shares in a reduced price inside a private keeping 3.56 million Corus B shares at $9 a share before 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 approximately $400 million to $600 million so Shaw could fund its purchase of Wind. “They couldn’t refute the math we given to them,” De Alba explained. He said his firm had already sent case study to ISS and intends to distribute the analysis to Corus minority shareholders prior to the vote.
Catalyst is pressuring Corus to postpone the March 9 meeting, reconfigure the offer by lowering the price and eliminate the benefits accrued to the Shaw family in the related-party transaction.
For her part, Tindal described the Feb. 16 meeting as “quite lengthy,” adding that Corus executives “addressed all of (Catalyst’s) questions in a comprehensive way.”
In an e-mail, Tindal disputed Catalyst’s criticism concerning 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 assessment of 14 comparable transactions from the North American broadcasting sector.
Since the proposed acquisition was announced, class B shares of Corus have plunged 15 per cent 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 12 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
