Catalyst releases detailed analysis of Corus circular as analysts downgrade stock, debt

Investor & analyst concerns grow about debt, excessive price of Shaw Media acquisition

TORONTO, Feb. 29, 2016 /CNW/ - As concern grows among investors about the proposed Corus Entertainment Inc. ("Corus") (TSX:CJR.B) acquisition of Shaw Media Inc. ("Shaw Media"), the Catalyst Capital Group Inc. ("Catalyst") releases a detailed compilation of the specific problems, misstatements and inconsistencies in the circular provided by Corus. The full analysis is available at www.StopCorusShaw.ca.

High-cost transaction hurts Corus debt and equity

Analysts have downgraded both Corus's debt and equity following concerns about the high price of the transaction and the prospect of Corus taking on potentially unsustainable leverage given the growth profile of the business. The stock is down more than 50 per cent over the last year, and DBRS has downgraded Corus's issuer rating to BB, reserved for "speculative, non-investment grade credit quality" where "the capacity for the payment of financial obligations is uncertain [and] vulnerable to future events."

The debt capital markets have also responded poorly to the perceived risk in the deal. Corus had to withdraw its senior unsecured notes offering due to a required interest rate on the notes of at least 9 per cent, substantially above Corus's target financing cost.

As reported by Bloomberg: "Bond investors are concerned that the takeover will leave Corus with too much debt, Paul Tepsich, managing director of High Rock Capital Management Inc., said in an e-mail. It's "insanity for them to take on more leverage in a declining sector," he said. Corus will sit on its bridge loan and then "come to grips with the new reality" of paying the right coupon to assume so much more leverage in this market environment."

Even reports that see strategic value in the transaction have raised concerns of dilution and significantly increased leverage (ISS), and flawed and misleading disclosures (Glass Lewis). Both reports relied upon Barclays' analysis, which rested upon Corus's projections without independent verification of "the completeness, accuracy or fair presentation of the information." The capital structure proposed by Corus is also now flawed, since the market has rejected Corus's debt terms.

Recent analyst reports unfavourable

Equity analysts from RBC Capital Markets, BMO Capital Markets, Scotia Capital, National Bank, Canaccord Genuity, Cormark Securities and Credit Suisse have all lowered their share price targets for Corus since the deal was announced, with several citing the cost of the deal relative to the risk, dilution to minority shareholders and the company's leverage.

This month, Tim Casey at BMO Capital Markets lowered his price target on Corus B shares to $10.50 from $12.00 in a report, writing: "We believe longer-term growth challenges remain as the company faces structural and regulatory headwinds.  A path to sustainable revenue growth is not clear to us." Adam Shine at National Bank lowered his price target to $11.50 from $12.50, writing: "… we've lowered our target from $12.50, as we further adjust for all related financing costs, the dilution related to the lower-price offering, and anticipated net proceeds for the exit of Pay TV ($163 million vs. $211 million pretax)."

In January, Aravinda Galappatthige at Canaccord Genuity downgraded the Corus share price target to $10.00 from $10.50, writing: "Leverage remains our primary concern particularly in the backdrop of the structural challenges facing specialty TV . . . The combination of high debt and structurally challenged media assets have empirically been a bad combination."

Catalyst's analysis uncovers flaws in Corus circular

Catalyst's analysis validates minority Corus shareholders' concerns about the transaction.

"As investor concern grows about the Corus-Shaw transaction – validated by the market reaction – Catalyst's analysis confirms the view that minority shareholders deserve transparency, a reduced price, value-accretive actions by Corus, and more time to understand and evaluate the transaction," says Gabriel de Alba, Managing Director and Partner at Catalyst.

In addition to its analysis of the Corus circular, Catalyst has tabled an alternative proposal that would maximize shareholder value. For both documents, please visit www.StopCorusShaw.ca.

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.

SOURCE Catalyst Capital Group Inc.

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