Corus Entertainment Inc. has agreed to pay $2.65-billion to acquire Shaw Media Inc. from Shaw Communications Inc.
The price will be paid through a combination of $1.85-billion in cash and 71 million Corus class B shares at $11.21 per share. Both companies are ultimately controlled by the Shaw family of Alberta, but are separately listed on the Toronto Stock Exchange.
The deal requires approval from the Canadian Radio-television and Telecommunications Commission, as well as shareholders, though the Shaw family will be excluded from voting. If successful, the transaction is expected to close in the third quarter of Corus’s 2016 fiscal year. The Shaw family would stay closely involved in the company, and Shaw Communications would own 39 per cent of all Corus shares.
“This is a transformational acquisition that redefines Corus and Canada’s media landscape,” said Doug Murphy, president and chief executive officer of Corus, in a statement.
Should the deal close, the combined company would own 45 specialty and 15 conventional television stations, 39 radio stations, the Nelvana content studio and other assets.
The move signals that Corus is doubling down on its efforts to own the market for programming aimed at kids, women and families. Corus already owns a stable of networks such as Disney Channel, YTV, W Network and Treehouse, but adds major networks from the Shaw Media portfolio such as Food Network Canada, HGTV Canada and History Canada.
And it comes just as major regulatory changes to the television industry are rolling out, aimed at giving more choice to viewers, in part by requiring that channels be sold a la carte as well as in larger bundles. The new rules were expected to be challenging for some Corus networks, but the company is now more confident it has the scale to compete in the new landscape.
Combined revenue for Corus and Shaw Media in 2015 would have been $1.9-billion, and combining the two companies is expected to yield $40-million to $50-million in annual cost savings within two years.
“We believe these two companies will form a winning combination,” said JR Shaw, executive chairman of Shaw Communications, in a statement. “Their complementary mix of assets and strong management teams fit extremely well together.”
For Shaw Communications, “this is a significant milestone that positions us as a leading pure-play connectivity company,” said chief executive officer Brad Shaw in a memo to staff on Wednesday morning.
Shaw purchased the media assets in 2010 – acquiring the broadcast assets of CanWest Global Communications Corp., which was under creditor protection – for a total price of $2-billion, including the assumption of more than $800-million in debt.
After the transaction, Shaw will be focused solely on telecom assets, much like its western rival Telus Corp., which owns a national wireless operation but has never entered the media business, unlike the other national carriers BCE Inc. and Rogers Communications Inc.
It also removes any doubt about how Shaw will pay for its $1.6-billion acquisition of Wind Mobile Corp., which it announced in December. There had been some speculation that it could sell its U.S. data centre business ViaWest or issue equity.
Instead, Shaw made it clear it intends to use the cash from the sale of Shaw Media to fund the Wind purchase.
Shaw expects its acquisition of Wind to close in the third quarter of its fiscal year, which is the three-month period ending May 31, and said Wednesday if that transaction closes earlier, it will rely on bridge financing to fund the deal.
Analysts said the sale of Shaw’s media assets will improve the company’s debt leverage, keeping it within the range of 2.0 to 2.5 times earnings before interest, taxes, depreciation and amortization (EBITDA).
“In our view, this transaction significantly removes the risk of Shaw raising equity to delever,” said Canaccord Genuity analyst Aravinda Galappatthige, adding, “We expect investor sentiment to improve towards Shaw and to decline towards the wireless incumbents.”
He noted that Shaw’s ownership of assets with revenue growth will improve to about 60 per cent in 2017, up from about 37 per cent in 2015.
“Once again, we are changing the landscape in our Industry and with the announcements we’ve made over the past month will begin a new chapter in Shaw’s history,” Mr. Shaw told staff.
Shaw did note that it will retain its interest in Shomi, the streaming video service it owns as a joint venture with Rogers Communications Inc.
JAMES BRADSHAW AND CHRISTINE DOBBY
The Globe and Mail
Published Wednesday, Jan. 13, 2016 7:19AM EST
Last updated Wednesday, Jan. 13, 2016 9:55AM EST