Two weeks before a crucial shareholder vote, Corus Entertainment Inc. is seeking to squash concerns raised by a minority investor over its proposed $2.65-billion acquisition of Shaw Media, calling claims made in a recent media report "deeply misleading."
The shareholder, Catalyst Capital Group Inc., highlighted what it describes as "disclosure deficiencies" in the information Corus provided about the deal, which was announced in mid-January and is set to be voted on by minority shareholders on March 9. Catalyst concluded, based on its own analysis, that Corus is overpaying for Shaw's media assets by an estimated $400-million to $600-million.
But in a statement released late Tuesday afternoon, Corus sought to "correct a number of misstatements and inaccuracies," arguing the deal will give Corus more clout while delivering long-term value for shareholders.
According to the terms of the agreement, which also needs regulatory approval, Corus would pay $1.85-billion in cash and 71 million Corus class B shares valued at $11.21 a share to Shaw Media's parent company, Shaw Communications Inc. In turn, Shaw plans to use the proceeds from the sale to fund its previously announced $1.6-billion deal to buy wireless carrier Wind Mobile Corp. The deal would help Corus bulk up to compete in a media industry in major flux. The new company would own 45 specialty and 15 conventional television stations, plus 39 radio stations, the Nelvana content studio and other assets.
"Based on Corus's own prior disclosure, the deal is dilutive, not accretive, unless one assumes away facts such as having to pay for debt," a spokesperson for Catalyst managing partner Newton Glassman said an an e-mail Tuesday. "Catalyst is also concerned that the special committee [Corus struck to oversee the negotiations] was not formed ahead of the deal, and that the EBITDA and multiple were inflated to support the transaction."
Corus disputed several of Catalyst's claims, including that the deal is overpriced. The two companies met to discuss the transaction on Feb. 16, and at the time Catalyst said it had calculated that the deal was overpriced by $150-million to $200-million, according to Corus. "That number has since arbitrarily risen," Corus added.
A fairness opinion obtained from Barclays Capital Canada Inc. put the deal's fair value between $2.45-billion and $2.85-billion. "We just agree to disagree" with Catalyst on the precedents for setting a fair multiple for the purchase price, Doug Murphy, Corus's president and chief executive officer, said in an interview. "We are completely comfortable with the valuation that we're paying."
Catalyst has also claimed Corus failed to disclose that the Shaw Family, which controls 84 per cent of voting shares in Corus, could personally gain $50-million to $63-million from the transaction. Corus calls that allegation "unfounded," noting it priced a private placement of shares at a 3.6 per cent discount "following a full public marketing process."
"The family owns Shaw Communications. They own part of Corus [Entertainment]. And wherever the stock price moves on the day of the announcement, as you know, this deal was also done in some very turbulent markets," Mr. Murphy said. "So we just don't know that that's necessarily a comment that is even reasonable."
Corus said it "stands behind" its use of a special committee to oversee the negotiations, citing a four-month stretch in which the committee met 28 times.
In defending the deal, Corus has also pointed to a report by third-party firm Independent Shareholder Services, which supports the transaction.
"Although the high dilution of share issuance and the increased leverage as a result of the transaction may be a cause of concern, the strategic rationale behind the transaction appears appealing," the report concludes. "On balance, as the benefits of the transaction appear to reasonably outweigh the costs, a vote FOR this resolution is warranted."
Spokespeople for the Ontario Securities Commission and the Toronto Stock Exchange both declined to confirm whether they had received any complaint or correspondence from Catalyst on the matter.
Corus's stock closed at $9.83 per share on the TSX on Tuesday, down 1.5 per cent. The company's share price has fallen 55 per cent over the last year.