Catalyst Capital Group Inc. is stepping up its public campaign that encourages minority shareholders to vote down Corus Entertainment Inc.'s $2.65-billion deal to buy Shaw Media, even as some industry insiders raise questions about its claims.
The private equity firm released a more detailed public account of its opposition to the proposed transaction on Thursday, arguing that shareholders' stakes are being diluted to the benefit of the Shaw family, questioning certain financial claims Corus makes in its disclosure and suggesting investors lack the facts to make an informed decision.
The new materials also inflate Catalyst's claim that Corus is overpaying for the Shaw Media assets, suggesting the asking price is $858-million too high, after previously claiming the deal was overpriced by $400-million to $600-million. A shareholder vote on March 9, along with regulatory approvals, will determine the fate of the blockbuster deal, which would give Corus greater heft to compete in a television industry facing major upheaval while providing Shaw Communications Inc. with much needed cash to fund its $1.6-billion purchase of wireless carrier Wind Mobile Corp.
Catalyst insists its concern is as much about governance – the Shaw family controls Shaw Media's parent company, Shaw Communications Inc., and also holds 84 per cent of voting shares in Corus – as it is about extracting a lower price for the deal.
"The Shaw family has a larger ownership stake and a larger economic stake in Shaw Media. So the [higher value of the] transaction is being transferred from Corus to Shaw," said Gabriel de Alba, managing director and partner at Catalyst. "The problem is that it needs to be a fair game with fair disclosure, and not misleading disclosure."
In response, Corus maintains Catalyst's claims – including that Corus bid for Shaw Media days before establishing a special committee to oversee the process – are "clearly misleading." The process Corus followed was "entirely in compliance with both applicable law and good corporate governance and disclosure principles," the company said in a statement.
Catalyst's interest in Corus is new – Mr. de Alba confirmed that his firm only bought its stake this fiscal quarter, after the Corus-Shaw deal was announced, because "we believe in the investment, and because we believe in the improvement of the process."
Shaw Communications declined to comment.
Yet Mr. de Alba's partner at Catalyst, Newton Glassman, has a history of involvement in the telecom and media industries, including a recent connection to Shaw Communications. Catalyst went to court in December to oppose a plan of arrangement for Shaw's deal to acquire Wind Mobile for $1.6-billion. The firm later agreed to withdraw its objections and the court approved the plan on Feb. 3. Shaw said last week that it expects its purchase of Wind to close next Tuesday.
Mr. de Alba said Catalyst has heard from other concerned shareholders, but declined to name them. At the same time, other interested players are casting doubt on Catalyst's crusade to block the deal on its current terms.
"We are unclear of Catalyst's motive at this time and wonder if its arguments will hold much sway with Corus' public shareholders," Canaccord Genuity Corp. analyst Aravinda Galappatthige wrote in a research note. "In our view, it is common to raise concerns around related-party transactions, but shareholders are unlikely to vote down the deal simply due to 'process' issues."
Stephen Takacsy, chief investment officer at Montreal-based Lester Asset Management, a long-time minority shareholder in Corus with more than 800,000 shares, agrees with some finer points of Catalyst's criticism. And while he would support a lower price, he said "valuing companies is not a precise science and combining the companies is the right thing to do."
But he also said the notion that the Shaw family is benefiting unfairly is "complete and utter nonsense."
"The Shaws are fully invested in the same way as everybody else is," he said.
Corus had also planned to issue $300-million in high-yield bonds this week as one part of the financing for the Shaw Media acquisition, but a spokesperson confirmed the company has postponed the offering "until market conditions improve."