Canadian private equity firm Catalyst Capital Group said Corus Entertainment Inc‘s recent response to the concerns of its minority shareholders about the proposed $2.65 billion buy of Shaw Media Inc is “inadequate and deficient”. Catalyst, an investor in Corus, said it is concerned the transaction will see Corus “significantly overpay” for the asset by as much as $858 million. Catalyst Managing Director and Partner Gabriel de Alba said: “While this may be a good deal for the Shaw family, it is a bad deal for every Corus minority shareholder.” Corus announced in January it had agreed to acquire Shaw Media from an affiliated company, Shaw Communications Inc.
Catalyst has provided its detailed concerns about the Shaw Media deal at www.stopcorusshaw.ca.
Catalyst Capital Group details concerns with Corus transaction
Corus continues pattern of misleading and deficient statements to shareholders
TORONTO, Feb. 25, 2016 /CNW/ – The Catalyst Capital Group Inc. (“Catalyst”), Canada’s second-largest independent private equity firm, declared today that Corus Entertainment Inc.’s (“Corus”) response to the valid concerns of minority shareholders is inadequate and deficient. Catalyst also highlighted its key concerns with Corus’ decision to significantly overpay for Shaw Media. Catalyst’s concerns are detailed in an investor presentation available online at www.StopCorusShaw.ca.
“While this may be a good deal for the Shaw family, it is a bad deal for every Corus minority shareholder,” said Gabriel de Alba, Managing Director and Partner of Catalyst. “Catalyst has asked Corus simple questions on behalf of all shareholders, only to be met with secrecy and a steady stream of misleading information. The problem of a lack of transparency is compounded by the speed at which they are trying to push through this transaction.”
“Catalyst knows these assets well given our past involvement in CanWest. Based on management’s own disclosures, the deal is dilutive, not accretive, and the process has been stacked against the minority shareholders. This would be a terrible precedent, and cannot be allowed to stand,” Mr. de Alba stated.
Given the Shaw family’s control of the voting shares of Corus, the special meeting on March 9th is the only opportunity for minority shareholders to express their views. Therefore, shareholders require full and clear disclosure of all material facts that have not been provided in the current Corus circular so they can make an informed decision. Catalyst demands that a revised circular be issued and a new meeting date be set for the purpose of protecting the interests of all minority shareholders.
Catalyst’s analysis, based on Corus’ disclosures, reveals that Corus is overpaying for Shaw Media by up to $858 million and paying excessive fees. For the benefit of minority shareholders, Catalyst is calling for a reduction of the Shaw Media acquisition price due to the following critical concerns:
Misleading Financial Reporting
Corus’ January 13, 2016 news release is misleading, as are subsequent supporting materials, including the January 27, 2016 Short Form Prospectus for the Subscription Receipts, the February 9, 2016 Management Information Circular and the February 2016 Fixed Income Presentation (presented on February 17, 2016). In these materials, Corus provides misleading statements regarding the following:
Corus publicly reported the acquisition of Shaw Media at a 7.7x EV/EBITDA multiple based on an “adjusted” EBITDA of $342 million. In reality, after accounting for minority interests, proportionate adjusted EBITDA is approximately $309 million, which implies an 8.6x EV/EBITDA multiple
Corus reported combined adjusted EBITDA of $619 million. Adjustments for the sale of Pay TV and the minority interests result in EBITDA that is $65 million less or an actual proportionate combined EBITDA of $554 million
Corus reported that the transaction is immediately accretive, however it is actually dilutive, both on an EPS and FCF basis (unless one assumes away facts such as having to pay for debt and the existence of non-controlling interests in subsidiaries of Shaw Media)
Dilutive Share Issuances
Corus minority shareholders are being diluted by approximately 55% on the $800 million in Corus shares that are being paid as consideration for Shaw Media, the $263 million public offering of Corus’ Subscription Receipts and the $32 million private placement of Subscription Receipts to the Shaw family
Dilution comes at a significant discount to historical share prices ($9.00 or a 60% discount to 52-week high of $22.36)
Shareholders are being diluted by the sale of shares via the Subscription Receipts offering and the private placement at an EV/EBITDA multiple of 5.5x pro forma for the sale of PayTV. This multiple is significantly below the multiple at which Corus sold its PayTV business (6.7x), and even further below the multiple that Corus is paying for Shaw Media (8.6x)
Minority shareholders were not offered the opportunity to purchase Subscription Receipts pro-rata to their holdings as of the transaction announcement, which is especially damaging to the small investor
Dilutive to Earnings
Corus’ proposal to incur an additional $1.5 billion of debt results in leverage that is significantly higher than its stated target. The additional debt service amount is dilutive to earnings, contrary to Corus’ representation, and may jeopardize future dividends
The Shaw family was involved in the planning and structuring of the deal from its earliest stages
Corus advanced its bid for Shaw Media without creating a special committee to ensure the integrity of the process
Corus raised its initial offer of $2.3B – $2.55B to $2.65B despite the fact that the deal is a related party transaction and no competitive process took place
Corus is using a fairness opinion from RBC, which is earning significant fees contingent upon the transaction closing, and had a financial advisory role for Shaw in three transactions in the past two years. One of RBC’s advisory assignments to Shaw occurred while it was advising Corus on the Shaw Media transaction
Corus is paying approximately $120 million in fees and expenses to effect the transaction, including a $45 million make-whole provision on a low-cost, long-dated debt issuance that is being refinanced in a difficult credit environment, with a full-turn higher leverage ratio
Catalyst has retained Kingsdale Shareholder Services as a strategic and communications advisor in relation to the Corus-Shaw Media acquisition.
About The Catalyst Capital Group Inc. (www.catcapital.com)
The Catalyst Capital Group Inc., a private equity investment firm founded in June 2002, is a leader in distressed-for-control investing. The firm’s mandate is to manufacture risk adjusted returns, in keeping with its philosophy of “we buy what we can build.” Catalyst’s Guiding Principles of investment excellence through superior analytics, attention to detail, intellectual curiosity, team and reputation are key to the firm’s success. The Catalyst team collectively possesses more than 110 years of experience in restructuring, credit markets and merchant and investment banking in both Canada and the United States.
For further information: MEDIA ENQUIRIES: Daniel Tisch, Argyle Public Relationships, Direct: (416) 968-7311, ext 223, email@example.com; INVESTOR ENQUIRIES: Ian Robertson, Kingsdale Shareholder Services, Direct: 416.867.2333, Cell: 647.621.2646, firstname.lastname@example.org
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