Corus Adds Content, Shaw Finances Wireless in $1.9 Bln Dealby
Canadian company gains Global Television and HGTV network
Shaw Communications to use proceeds to pay for Wind purchase
Corus Entertainment Inc. agreed to buy Shaw Communications Inc.’s media business for C$2.65 billion ($1.86 billion) in cash and stock, helping Shaw finance its wireless expansion and turning Corus into a Canadian broadcasting heavyweight. Both stocks soared.
Shaw Communications will receive about C$1.85 billion in cash and 71 million Corus Class B shares at C$11.21 each, according to a statement Tuesday. The deal will generate about C$40 million to C$50 million in cost savings and includes Global Television and channels such as Food Network Canada, HGTV Canada and Lifetime.
The deal gives Shaw the funding it needs for its C$1.6 billion acquisition of Wind Mobile, solidifying its plans to compete with the country’s top three wireless carriers and ameliorating concerns the company’s debt could slip to junk. It also sides with Telus Corp. in the bet that directly owning content in the form of TV shows and stations isn’t necessary to compete with companies like Rogers Communications Inc. and BCE Inc., the wireless carriers that also own large TV networks.
“While the media assets were very profitable, we see Shaw’s refocusing of efforts into synergistic wireless assets (which should improve its cable business position in the market in western Canada) as a better direction for the company and its shareholders in the long term,” Maher Yaghi, a Montreal-based analyst at Desjardins Securities Inc., said in a note to clients.
Shaw posted its biggest gain in almost seven years, climbing 8 percent to C$25.25 at 9:45 a.m. in Toronto. Corus jumped 1.8 percent to C$11.82, giving it a market value of C$1.04 billion.
In what it called a “transformational acquisition,” Toronto-based Corus will almost double in size, based on sales, adding 45 television channels and 39 radio stations and solidifying its market leading presence in channels for women and kids.
The combined Corus-Shaw Media had C$1.9 billion in revenue in fiscal 2015 and C$619 million in adjusted earnings before interest, taxes, depreciation and amortization. The companies haven’t decided yet who will run the business. The leadership team will be announced at or prior to the close of the deal.
Shaw Communications will own 39 percent of Corus’s total equity, including Class A and Class B shares. The company’s borrowing costs have soared since its December agreement to buy Toronto-based Wind, on concern that the purchase puts its investment-grade credit rating at risk. Standard & Poor’s said last month it may cut the company’s BBB- credit rating by one level to junk level if it determines the Wind deal will weaken profitability or cash flow.
Still, the Corus deal doesn’t eliminate the possibility Shaw will go back to the debt or equity markets in the future, Yaghi said.
“Given the significant investments needed to reposition and upgrade Wind’s network to offer a competitive product, we suspect further external financing might be required in future years,” he said.
Royal Bank of Canada worked with Corus on the deal, while Toronto-Dominion Bank advised Shaw.