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Corus Entertainment Inc. struck a $540-million cash-and-stock deal for Nelvana Ltd. Monday, securing a crucial building block in the broadcasting company's international ambitions.

"Our ability to acquire a strong international company was absolutely essential to us," John Cassaday, Corus president and chief executive officer, said Monday. "We believe there is a tremendous opportunity for us to create around the world a preschool brand."

The Nelvana acquisition arms Corus with a growing library of 700 hours of animation and a distribution network spanning 160 countries - key content and contacts necessary to launch an international children's television channel, he said.

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The Toronto company has had "extensive talks" aimed at launching a digital channel in the United States modelled after Treehouse TV, the company's specialty channel devoted to preschoolers, he said.

The agreement values the shares of Toronto-based Nelvana at $48 each. Corus will acquire the company for $540-million, about 60 per cent in cash and 40 per cent in class B non-voting shares. The company holds 675,000 of Nelvana's subordinate voting shares.

Corus will take on Nelvana's $75-million debt, pushing the company's debt load to about $400-million. After the deal closes in November, Nelvana shareholders will control about 11 per cent of Corus's 42 million class B shares.

The deal ends weeks of speculation that Nelvana was a takeover target. Since early August, shares have risen steadily from the $25 range on increasing rumours that several suitors were vying for the Toronto company, including Corus, French film producer Canal Plus SA and Granada Media PLC of London. Serious talks between Corus and Nelvana began about two months ago.

"In order to take ourselves to the next step, we've got to be part of a bigger company, and this is the perfect partner for us," said Michael Hirsh, Nelvana co-CEO.

Nelvana's controlling shareholders - Mr. Hirsh, co-CEO Patrick Loubert and senior executive vice-president Clive Smith - have agreed to tender and have signed multiyear employment contracts with Corus.

The two companies "fit together like a glove," Mr. Cassaday said. Corus will gain the rights to about 60 Nelvana-produced cartoons. Corus, the former media unit of Calgary's Shaw Communications Inc., has interests in 10 specialty channels, including YTV, Treehouse and The Family Channel. Combined, the Corus channels have licences to 11 Nelvana programs. In addition, Nelvana and Corus each own 20 per cent of Teletoon. "This is a good strategic acquisition for Corus, and a fair price for Nelvana shareholders," said Roger Dent, an analyst at Yorkton Securities Inc.

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Corus promised more deals are in the works, including its potential purchase of Cinar Corp. The shares of the troubled Montreal animation company have been suspended since March amid allegations against the firm involving tax credit fraud, unauthorized offshore investments and unspecified related-party transactions.

The Corus aquisition marks the latest convergence deal - the marriage of telecom, media and entertainment companies. Last week, publisher Quebecor Inc. acquired cable company Groupe VidÊotron Ltee for $4.9-billion, while BCE Inc. and Thomson Corp. created a $4-billion media company that will include The Globe and Mail and television network CTV Inc.

Analysts speculate a handful of mid-tier media companies may soon be in play, including publisher Torstar Corp. and radio and television broadcasters CHUM Ltd. and Astral Communications Inc.

"Any Canadian media company with strategic assets that is not in a position to consolidate should be viewed as a target," said Susan Reid, an analyst at Montreal's Research Capital Corp.

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