Catalyst continues campaign against Corus-Shaw

The private equity firm has increased the amount it says Corus is overpaying for Shaw, and is continuing to encourage minority shareholders to vote against the deal.
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The public battle between Corus Entertainment and private equity firm Catalyst Capital Group Inc. is continuing today, with both parties issuing new statements on Corus’ proposed acquisition of Shaw Media’s assets.

In a release posted yesterday on its website, Catalyst once again asserted that the Shaw family has the most to gain from the deal. It says that Corus Entertainment is overpaying for Shaw Media by up to $858 million, an increase from the $400 to $600 million Catalyst cited earlier this week.

Catalyst has also alleged the Shaw family has gained $40 million from fluctuations in trading prices of Corus and Shaw shares on the TSX following the announcement of the deal. Corus noted in a statement earlier this week that the family “obviously… cannot predict, nor is responsible for, market fluctuations in the share prices of the two companies.”

The equity firm is calling for a reduction in the price that Corus will pay for Shaw, claiming misleading financial reporting, dilutive share issuances, dilutive to earnings, governance failures and unnecessary fees.

It claims that the Shaw family was involved in the planning and structure of the deal from the earliest stages. Catalyst also said that Corus initiated the bid to acquire Shaw Media without creating a special committee to ensure the integrity of the process. Corus refuted that statement, saying the transaction governance was led by a special committee of independent directors that met 28 times over the course of four months.

Corus Entertainment issued a release Friday morning that independent proxy advisory research firm Glass Lewis has recommended that shareholders of Corus vote for the deal. Glass Lewis’ note says the acquisition would add greater scale and audience share to Corus’ operations, with additional resources for programming and cross-platform integration. It also says that the acquisition price appears reasonable.

Corus says in the release that Glass Lewis is the second independent proxy advisory firm to issue a recommendation in support of the deal. On Monday, proxy advisory firm Institutional Shareholder Services (ISS) also recommended that shareholders vote for Corus to acquire Shaw Media.

Corus also issued a specific rebuttal at Catalyst, saying the firm is entitled to its own opinion about the transaction, noting that the initial circular provides the firm with the information necessary to make a decision on the issue.

Corus cited a report from financial services firm Canaccord Genuity that calls the campaign from Catalyst against the Corus-Shaw deal “questionable,” saying that all benefits of the deal are fully disclosed in the Corus information circular.

Catalyst’s allegations against the two parties include that Corus raised the initial offer of $2.3 to $2.5 billion to $2.65 billion without a competitive process and despite what it views as a conflict of interest due to the Shaw family’s involvement. It also notes that Corus is using a fairness opinion from RBC, which it argues is a further conflict of interest, because RBC is earning significant fees contingent on the deal closing, and has had a financial advisory role with Shaw for three transactions over the past two years.

Catalyst notes that 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 what it calls a difficult credit environment, with a full-turn higher leverage ratio.

The private equity firm is recommending Corus minority shareholders vote against the deal during the special meeting on March 9.

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