Shares of Corus Entertainment Inc. surged Friday on speculation that it will follow its major rivals into the arms of a communications giant.
Corus shares climbed 7.5 per cent on the Toronto Stock Exchange after BCE Inc. said it would pay about $3-billion for Astral Media Inc. , a 38-per-cent premium to the previous day's market valuation.
If a suitor were to offer a similar valuation for Toronto-based Corus, its stock could rise at least another 20 per cent.
But any acquisition of Corus would be complicated by the fact that the operator of several specialty television stations, including YTV and W Network, and pay-TV channel Movie Central, is a member of the Shaw Communications Inc. empire.
Corus was built from the media assets originally owned by Shaw Communications, and spun off as a separate, publicly traded company in 1999. Today, Shaw, the biggest cable provider in Western Canada, owns 3.5 per cent of Corus but controls almost 85 per cent of the voting rights.
"Corus is already spoken for," said Brahm Eiley, principal of Convergence Consulting Group in Toronto. "It is a fait accompli at this point."
BCE's proposed deal would largely complete the consolidation trend in Canada that now has four major cable, wireless or satellite players owning most of the country's broadcast content.
This, combined with strict foreign-ownership restrictions, leaves little chance of competing bids for Corus, unless Telus Corp. decides that it wants to enter the content market. But the country's No. 2 wireless provider has so far charted a successful course that avoids owning a broadcaster, a strategy Mr. Eiley expects will continue.
BCE's offer values Astral at 9.6 times enterprise value divided by this year's estimated earnings before interest, taxes, depreciation and amortization (EBIDTA); and 8.8 times estimates for 2013. These are similar to values used for BCE's previous acquisition of CTV and Shaw's purchase of CanWest Global Communications, according to Aravinda Galappatthige, an analyst with Canaccord Genuity Corp.
Astral and Corus have historically traded at similar valuation multiples; just before BCE's acquisition announcement, Corus traded at a slight premium to Astral, he noted in a report Friday.
Corus currently trades at seven times enterprise value divided by estimated 2013 EBITDA. Using the implied multiples of BCE's offer, Corus's valuation rises to $28.75 per share, Mr. Galappatthige calculated.
"Given Shaw's control of Corus through the dual-class capital structure, it is unlikely to be challenged by a third party and thus Shaw may not be rushed in the matter," he said.
Shaw executives will watch how the regulators handle BCE's proposed acquisition of Astral before making any move to consolidate their hold on Corus, Mr. Eiley said.
BCE's plan would see Astral, the country's eighth-largest media outlet, swallowed by its biggest communications company. Less than a year ago, BCE acquired the CTV network and its stable of specialty channels and radio stations for $1.3-billion.
Mr. Eiley questioned whether regulators will approve BCE's acquisition of Astral without requiring some assets be shed. But ultimately, he said, the marriage would transform BCE into a "regulatory powerhouse" that would shape policy for years to come.