Stingray Digital Group Inc (TSX: RAY.A-.B) has agreed to acquire Newfoundland Capital Corp Ltd (NCC), the Dartmouth, Nova Scotia-based owner and operator of Newcap Radio. Stingray agreed to pay about $506 million, including debt. Members of the Steele Family, accounting for about 87 percent of NCC’s outstanding shares, agreed to support the deal. Canadian pension fund manager Caisse de dépot et placement du Québec agreed to contribute $40 million to the funding. Stingray, a Montréal-based entertainment content provider and broadcaster that went public in 2015, said the acquisition will expand its operations into radio broadcasting.
Stingray Acquires Newfoundland Capital Corporation Limited, One of Canada’s Leading Radio Broadcasters
Stingray to become Canada’s largest public independent media company
$506 million transaction marks Stingray’s entry into the broadcast radio market
Supports Stingray’s growth and strategy through a complementary vertical, new revenue sources, and significant advertising revenue synergies
Transaction financing includes $450 million new credit facilities and $180 million of equity, comprised of a $83 million bought deal offering of subscription receipts, a $40 million private placement of subscription receipts to Caisse de dépôt et placement du Québec, $40 million share exchange to NCC shareholders and $17 million from the exercise of preemption rights from the Boyko Group
MONTREAL, May 02, 2018 (GLOBE NEWSWIRE) — Stingray Digital Group Inc. (“Stingray”) (TSX:RAY.A) (TSX:RAY.B) today announced that it has signed a definitive agreement to acquire all of the issued and outstanding shares of Newfoundland Capital Corporation Limited (“NCC”) (TSX:NCC.A) (TSX:NCC.B), one of Canada’s leading radio broadcasters with 101 licences (82 FM and 19 AM) across Canada. A major addition to Stingray’s current offering, which includes specialty television channels and multiplatform music and video services, this transaction is expected to significantly strengthen its position as the leading independent music business in the Canadian media landscape while continuing to build its global reach, and support its growth strategy through a complementary vertical and new revenue sources.
Stingray will acquire all of the Class A Subordinate Voting Shares and Class B Common Shares of NCC for $14.75 per share, representing a premium of approximately 16% based on NCC’s volume-weighted average closing share price on the TSX for the last 20 trading days (the “Transaction”). The Transaction is valued at approximately $506 million (the “Purchase Price”), including the assumption of a net debt of approximately $112 million as at December 31, 2017. Management expects the combination to be more than 30% accretive to Stingray’s Adjusted net income per share within the first full fiscal year of operations after closing.
NCC reaches millions of listeners each week through a variety of formats and is a recognized industry leader in radio programming, sales, and networking. NCC operates 72 local radio stations and 29 repeating stations — also available on web and mobile — in seven (7) provinces from coast to coast. NCC holds the second largest number of radio licences in Canada. NCC is headquartered in Dartmouth, Nova Scotia and employs approximately 800 radio professionals nationwide.
Unique opportunity to create Canada’s largest public independent media company
Confirms Stingray’s leading position as a multiplatform music products and services provider by adding 72 local radio stations and 29 repeating stations also available nationally through the web and mobile apps
Well-positioned to continue to pursue strategic acquisitions across all platforms and geographies, including fragmented Canadian regional radio market
Strengthens Stingray’s position as the leading independent music business in the Canadian media landscape
Increases Stingray’s reach by millions of weekly listeners across Canada
Provides a national promotion platform to accelerate Stingray’s mobile subscriber growth, a new channel to promote Stingray’s SVOD products and specialty TV channels
Diversifies Stingray’s revenue profile with complementary advertising revenues
Provides Stingray with a balanced mix of revenues from telcos, cablecos, commercial music (retailers) and national and local advertising
Leverages NCC’s advertising client base and sales force to grow Stingray’s TV specialty channels advertising revenues
$5 million of expected incremental advertising revenues within 18 to 24 months post-closing
Acquisition of a leading radio operator with a strong financial profile
#2 private radio player in Canada by number of radio stations and #3 by revenue
Coast to coast geographical reach with a presence in seven (7) provinces
CRTC regulated business providing stable returns with best-in-class operating metrics
Experienced management and sales team
Expected cost synergies and cross-selling opportunities
$8 million expected head office cost reductions and public company cost savings within the first year
Provides Stingray instant access to an experienced advertising sales team and existing national and local client base
Opportunity to cross-sell Stingray’s products across established retail client base, including: restaurant chains, grocery stores, consumer staples, car dealerships, telcos and financial institutions
Bolsters Stingray’s financial profile to accelerate its acquisition strategy
Expected to significantly increase Stingray’s Adjusted EBITDA and Adjusted free cash flow
Expected significant first year accretion to Adjusted net income per share of more than 30%
Robust free cash flow generation expected to support Stingray’s growth and dividend policy
Financial flexibility expected to be maintained to pursue ongoing tuck-in acquisition strategy
“This transaction with NCC comes after months of careful review” said Eric Boyko, President, Co-founder, and CEO of Stingray. “It represents a considerable milestone for Stingray — positioning us as Canada’s largest public independent media company — and a valuable opportunity for our stakeholders. We have found in NCC an established and trusted partner with a proven track record of delivering results in niche markets across the country. I am excited to expand Stingray’s operations into radio broadcasting and bring on board some of Canada’s most popular on-air talent and an experienced sales force, which will help us grow our revenue streams. I look forward to welcoming the NCC team to the Stingray family and collaborating with the current management in place.”
“Today marks the start of an exciting chapter for NCC” said Rob Steele, Chairman, President and CEO, of NCC. “By joining forces with Stingray, we are of the view that the synergies will allow our business to move towards even greater success. Together, we have begun to build a solid foundation for Canada’s next great media group. We expect that our combined company will stand out in today’s fiercely competitive market for its world-class talent and complementary service offering. On behalf of NCC’s management and Board of Directors, I am thrilled NCC is joining the Stingray family.”
For each NCC share, shareholders will receive between $13.17 and $13.28 in cash with the balance of the price to be paid in Stingray subordinate voting shares (or Stingray variable subordinate voting shares, as applicable). This will result in between 0.15371 and 0.14294 Stingray shares for each share of NCC owned, based on the total number of NCC shares outstanding at closing. They will also be entitled to continue to receive regular semi-annual dividends in the amount of $0.25 per share that would be expected to be declared by NCC until closing of the Transaction.
The Transaction will be effected through a plan of arrangement and will be subject to the approval of 66 2/3% of the votes cast by NCC shareholders, voting together as a single class, at a special meeting of NCC shareholders expected to be held in July 2018 (the “Special Meeting”). In addition to NCC shareholder approval, the Transaction is subject to customary closing conditions, including court, Canadian Radio-television and Telecommunications Commission (CRTC) and other regulatory approvals.
The Board of Directors of NCC, having received a unanimous recommendation from a special committee comprised solely of independent directors (the “Special Committee”), has unanimously (excluding any director not entitled to vote) approved the Transaction and recommends that NCC shareholders vote in favour of the Transaction. The financial advisor to the Special Committee, Blair Franklin Capital Partners, has provided an opinion to the Board of Directors and the Special Committee to the effect that the consideration to be received by NCC shareholders is fair, from a financial point of view, to such shareholders.
Members of the Steele Family, representing approximately 87% of the outstanding shares and approximately 93% of the voting rights of NCC, have entered into irrevocable voting support agreements in favour of the Transaction, and a 5-year lockup and voting trust agreement in favour of Eric Boyko for the Stingray shares to be received by them as consideration in the Transaction. In addition, directors and senior officers of NCC that beneficially own NCC shares have also entered into voting support agreements pursuant to which, subject to certain terms and conditions, they have agreed to vote all of their NCC shares in favour of the Transaction at the Special Meeting.
The agreement between Stingray and NCC provides for a non-solicitation covenant on the part of NCC, subject to customary “fiduciary out” provisions, and a right in favour of Stingray to match any superior proposal. If Stingray does not exercise its right to match, Stingray would receive a termination fee of $12 million should NCC support any superior proposal. A reverse termination fee of $12 million would also be payable by Stingray to NCC under certain circumstances.
Upon closing, Mr. Rob Steele will step down as President and Chief Executive Officer of NCC and Mr. Ian S. Lurie will continue to assume leadership responsibilities with regards to Stingray’s new radio operations.
Further information regarding the Transaction will be contained in a management proxy circular that NCC will prepare, file and mail to NCC shareholders in advance of the Special Meeting. Copies of the arrangement agreement, voting support agreement and management proxy circular will be available on SEDAR at www.sedar.com.
Closing of the Transaction is expected to occur by the end of 2018, but no later than May 2, 2019.
The Transaction is being funded through a combination of:
$83 million bought deal public offering (the “Offering”) of subscription receipts of Stingray (the “Subscription Receipts”) at a price of $10.40 per Subscription Receipt and additional gross proceeds of up to $12 million pursuant to an Over-Allotment Option (as defined below);
$40 million private placement (the “Concurrent Private Placement”) of subscription receipts of Stingray (the “Private Placement Subscription Receipts”) at a price of $10.40 per Private Placement Subscription Receipt with the Caisse de dépot et placement du Québec (“La Caisse”) and additional gross proceeds of up to $6 million in the event the Over-Allotment Option is exercised;
$17 million in subscription receipts (the “MVS Subscription Receipts”) through the exercise by members of the Boyko Group of subscription rights attached to their multiple voting shares of Stingray;
$40 million through a share exchange as part of the consideration payable to NCC shareholders; and
$450 million of new committed credit facilities.
Management expects the Transaction to be more than 30% accretive to Stingray’s Adjusted net income per share within the first full fiscal year of operations after closing.
Assuming the realisation of expected cost and revenue synergies described above, without considering any restructuring, integration expenses and transaction-related costs, management estimates the enterprise value multiple to represent approximately 7.7x the trailing twelve months Adjusted EBITDA of NCC for the period ended December 31, 2017.
Pro forma Net debt to Adjusted EBITDA is expected to be approximately 3.6x at closing and stand at approximately 2.5x Net debt to Adjusted EBITDA 18 to 24 months after closing.
Public Offering of Subscription Receipts on a Bought Deal Basis
To finance the payment of a portion of the Purchase Price and related expenses, Stingray has entered into an agreement with National Bank Financial Inc. and BMO Capital Markets, on behalf of a syndicate of underwriters (the “Underwriters”) under which they have agreed to purchase on a bought deal basis from Stingray 7,981,000 Subscription Receipts at a purchase price of $10.40 per Subscription Receipt for gross proceeds of $83 million. Each Subscription Receipt will entitle the holder thereof to receive, upon the satisfaction of certain conditions and without payment of additional consideration or further action, either one subordinate voting share of Stingray or one variable subordinate voting share of Stingray, depending on whether the holder is a “Canadian” under the Broadcasting Act (Canada).
In addition, Stingray has granted the Underwriters an option to purchase up to an additional 1,197,150 Subscription Receipts at any time up to 30 days after closing of the Offering (the “Over-Allotment Option”), for additional gross proceeds of up to $12 million. The Subscription Receipts will be offered in all provinces and territories of Canada pursuant to a short form prospectus to be filed by Stingray in accordance with National Instrument 44-101 – Short Form Prospectus Distributions.
The issuance of the Subscription Receipts pursuant to the Offering is subject to customary approvals of applicable securities regulatory authorities, including the Toronto Stock Exchange. Closing of the Offering is expected to occur on or about May 23, 2018. The Offering and the Concurrent Private Placement (described below) are conditional upon each other. The Offering is also conditional upon there being no termination of the Transaction or announcement of such termination prior to the closing of the Offering.
Private Placement of Subscription Receipts
Concurrently with the Offering, Stingray has entered into a subscription agreement pursuant to which it will complete the Concurrent Private Placement with La Caisse who will acquire, on a private placement basis and at a price of $10.40 per receipt, 3,846,100 Private Placement Subscription Receipts, for aggregate gross proceeds of $40 million. Each Private Placement Subscription Receipt will entitle the holder thereof to receive, upon the satisfaction of certain conditions and without payment of additional consideration or further action, one subordinate voting share of Stingray.
In addition, La Caisse will be entitled to purchase up to an additional 576,915 Private Placement Subscription Receipts if and when the Over-Allotment Option is exercised by the Underwriters, for additional gross proceeds of up to $6 million. The Private Placement Subscription Receipts will be subject to a four month hold from the closing date of the Concurrent Private Placement.
“Through this transaction, La Caisse supports Stingray in its evolution and in the strengthening of its offer to become the independent music business leader in Canada,” said Christian Dubé, Executive Vice President, Québec at La Caisse. “Since our initial investment in Stingray three years ago, the company has experienced exemplary performance. We are convinced that the company is well positioned to continue its growth in international markets.”
The issuance of the Private Placement Subscription Receipts pursuant to the Concurrent Private Placement is subject to the approval of the TSX. Closing of the Concurrent Private Placement is scheduled to occur concurrently with the closing of the Offering. The Concurrent Private Placement is conditional upon closing of the Offering. The Concurrent Private Placement is also conditional upon there being no termination of the Transaction or announcement of such termination prior to the closing of the Concurrent Private Placement.
New Credit Facilities
Stingray currently has in place a $100 million credit facility (the “Credit Facility”) with a syndicate of financial institutions. Concurrently with the announcement of the Transaction, Stingray has entered into an underwritten financing with National Bank of Canada, as sole lead arranger and sole bookrunner, providing for:
A senior secured revolving credit facility in the maximum amount of $300 million to amend and restate the Credit Facility, and maturing on the third anniversary of the closing date of the Transaction; and
A senior secured non-revolving term credit facility consisting of a maximum principal amount of $150 million available as a single drawdown and maturing on the third anniversary of the closing date of the Transaction.
The net proceeds of the Offering, the Concurrent Private Placement, the private placement to Boyko Group and part of the New Credit Facilities will be used by Stingray to finance (i) the Purchase Price payable in respect of the Transaction on the closing date of the Transaction (ii) the repayment of the existing Credit Facility, and (iii) the financing and transaction costs incurred as part of the Transaction.
Financial and Legal Advisors
National Bank Financial Inc. is acting as financial advisor to Stingray on the Transaction. Legal advice is being provided to Stingray by Davies Ward Phillips & Vineberg LLP. Legal advice is being provided to the Underwriters by Fasken Martineau Dumoulin LLP. Marckenz Group Capital Partners and Scotiabank are acting as financial advisors to NCC on the Transaction. Legal advice is being provided to NCC by Stewart McKelvey. Blair Franklin Capital Partners are acting as financial advisors to the Special Committee of NCC. Legal advice is being provided to La Caisse by McCarthy Tétrault LLP.
Stingray will host a listen-only conference call to discuss the Transaction on Wednesday, May 2 at 4:00 PM (Eastern). Media are welcome to participate. A live audio webcast, including an investor presentation will be available on Stingray’s website at (www.stingray.com). To listen to the call without the investor presentation, please dial (877) 223-4471 or (647) 788-4922. A replay will be available for one week by dialing (800) 585-8367 or (416) 621-4642 and entering passcode 7957258.
Availability of Documents
Copies of related documents, such as the preliminary short form prospectus, underwriting agreement, subscription agreement and arrangement agreement will be available on SEDAR (www.sedar.com) as part of the public filings of Stingray and on Stingray’s website at www.stingray.com
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About Stingray Digital Group Inc.
Stingray Digital Group Inc. (TSX:RAY.A) (TSX:RAY.B) is the world-leading provider of multiplatform music and video services, and digital experiences for pay TV operators, commercial establishments, OTT providers, mobile operators, consumers, and more. Its services include audio television channels, premium television channels, 4K UHD television channels, karaoke products, digital signage, in-store music, and music apps. Stingray reaches 400 million subscribers (or users) in 156 countries and its mobile apps have been downloaded over 90 million times. Stingray is headquartered in Montreal and currently has close to 400 employees worldwide. For more information: www.stingray.com.
About Newfoundland Capital Corporation Limited
Newfoundland Capital Corporation Limited (TSX:NCC.A) (TSX:NCC.B) owns and operates Newcap Radio which is one of Canada’s leading radio broadcasters with 101 broadcast licences (72 radio stations and 29 repeating signals) across Canada. The Company reaches millions of listeners each week through a variety of formats and is a recognized industry leader in radio programming, sales and networking.
For more information, please contact:
Senior Vice-President, Marketing and Communications
1 514-664-1244, ext. 2362
Photo courtesy of Stingray Digital Group Inc