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Streetwise Shaw resorts to secondary offering to sell Corus stake after failing to find a single buyer

Shaw Communications Inc. is unloading its 38.6-per-cent stake in Corus Entertainment Inc. in a $548-million share sale, after struggling to sell the position to a single buyer last year.

The offering, announced after the market closed on Tuesday, is priced at $6.80 per Class B share, representing a 15.6-per-cent discount to Corus’s closing price. Corus is the owner of the Global television network and a slate of specialty TV channels, such as Food Network Canada and HGTV Canada.

Typically, share sales are sold at a discount of between 2 per cent and 4 per cent to market prices, yet the circumstances of this deal are unique. Chiefly, the offering comes after Shaw hired a financial adviser in 2018 to try to sell the position to a strategic buyer, such as Rogers Communications, or to a private equity firm. After an exhaustive search, the effort proved fruitless – partly because foreign-ownership restrictions prevented any non-Canadian buyers from acquiring the stake on a path to full control of Corus.

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Months later, Calgary-based Shaw is now selling its stake to public investors by way of a bought deal. Under this model, investment banks led by TD Securities will buy the entire position and then resell the shares to institutional and retail investors.

The discount is a reflection of both the size of the stake, as well as Corus’s ownership structure. After the sale, Shaw Communications will not own any Class A or Class B shares of Corus – yet the Shaw family will continue to control Corus through its ownership of Class A shares.

Shaw and Corus both declined to comment for this story.

The offering also comes on the heels of a strong run for Corus’s share price, with the stock up 69 per cent since the start of the year. Corus blew away analyst expectations when it last reported quarterly earnings in April, delivering an 11-per-cent lift in TV advertising revenue.

“This transaction is a positive for Shaw, given the capital that will be required to expand its wireless network and acquire high-band spectrum in preparation for 5G,” Canaccord Genuity analyst Aravinda Galappatthige wrote in a note to clients.

Shaw’s decision to unload the stake in a public offering marks the latest chapter in a dynamic relationship between Shaw and Corus. In 1999, the Shaw family spun out Corus to make Shaw Communications more of a pure play on cable.

Yet in 2010, Shaw ended up acquiring more media holdings by paying $2-billion to purchase CanWest Global Communications Corp.’s broadcast assets after that company’s restructuring. The deal gave Shaw control of the Global Television network, as well as Food Network Canada, HGTV Canada and Showcase.

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In 2016, the Shaw family decided to shake things up again, with Shaw Communications selling its media division to Corus for $2.65-billion to help pay for its acquisition of wireless startup Wind Mobile. The purchase came in two parts: $1.85-billion in cash, and 71 million Corus class-B non-voting shares at $11.21 per share.

The Class B shares included are those now being sold to public investors – albeit at a much lower price.

The price drop reflects the tough market for television networks. When Corus acquired Shaw Media three years ago, it made a bet on the power of women, believing that owning all six of the top six specialty channels watched by women would attract advertisers. Women tend to make their households’ spending decisions.

The deal was also a bet on content, which can be distributed or syndicated. On a conference call to discuss the purchase in 2016, Corus CEO Doug Murphy said there was a “content-hungry global marketplace.”

But Corus has struggled since because fewer people gather around television sets at the same time, which makes advertisers wonder whether TV ad buys are worth it. Facebook and Google have also gobbled up much of the ad money devoted to digital and social-media channels.

Corus’s balance sheet had also been weighed down by some $2-billion in debt. Under financial stress, the company slashed its dividend in June, 2018, and also took a $1-billion impairment charge.

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Lately, though, Corus has surprised analysts. For the quarter ended Feb. 28, its television ad revenue was surprisingly strong, and the share price has popped 25 per cent since. Shaw is selling its stake into this rally.

Mr. Murphy is hoping to build off the recent momentum, noting on a conference call in April that digital companies such as Trivago, Expedia, Amazon and Google are all seeing the value in TV ads. “I mean that guy on Trivago, the reason why you see him all the time is because television advertising works,” he said on the call.

He also flagged a recent study conducted by Accenture consultancy that was commissioned by industry group ThinkTV, which argued that advertisers across four key segments − automotive, consumer packaged goods, over-the-counter drugs and telecommunications − are overspending on digital. The study called for a correction in spending − more on TV, less on digital.

With reports from Christine Dobby and Susan Krashinsky Robertson

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