Corus Entertainment to Acquire Shaw Media in Transformational Acquisition

• Transaction significantly enhances Corus' financial profile, generating ~$1.9 billion in revenues, ~$619 million in adjusted EBITDA and ~$430 million¹ of free cash flow on a fiscal 2015 combined basis
  
  
• Creates category leader and scale in the highly valued Women, Kids and Family media segments
  
  
• Advances Corus' strategic priorities, including investment in Women, Kids and Family content for export globally
  
  
• Combination expected to generate $40-$50 million of annual cost synergies in addition to significant revenue synergies
  
  
• Acquisition expected to be immediately accretive to earnings and free cash flow per share
  
  
• Annualized dividend will be maintained at the current level of $1.14 per Class B Share
  

TORONTO, Jan. 13, 2016 /CNW/ - Corus Entertainment Inc. ("Corus") (TSX: CJR.B) announced today that it has entered into an agreement to acquire all of Shaw Media Inc. ("Shaw Media") from Shaw Communications Inc. ("SCI") for $2.65 billion to be paid through a combination of cash and Corus Class B Shares. The transaction will give Corus ownership of all of Shaw Media's leading brands, resulting in a combined portfolio with significant scale, including 45 specialty television channels, 39 radio stations, digital assets, the content studio, Nelvana, and 15 conventional television stations.

"This is a transformational acquisition that redefines Corus and Canada's media landscape," said Doug Murphy, President and Chief Executive Officer, Corus Entertainment. "This game-changing transaction brings together a powerful portfolio of synergistic media assets that will solidify Corus' position as the market leader in the highly valued Women, Kids and Family segments. It will also advance our strategic priorities through investment in content creation for our own platforms, and for global markets."

Doug Murphy added: "The time is right to unite these two strong media companies. With the addition of Shaw Media, we will have the competitive scale, the brands, the content and the team to accelerate our growth. We are also pleased to announce that Barbara Williams, currently Executive Vice President, Broadcasting and President, Shaw Media, will join Corus in a senior leadership capacity upon the closing of the transaction. As one of the industry's most-respected executives, Barbara will play an integral role shaping the new Corus, given her in-depth knowledge and exceptional leadership capabilities, as we bring our people and assets together." 

¹ ~$430 million of combined free cash flow excludes impact of interest on incremental debt to finance acquisition

The combined leadership team is expected to be announced at or prior to the close of the transaction. 

"We are confident that this transaction will create great value for our shareholders," said Fernand Bélisle, Chairman of the Special Committee of the Board of Directors of Corus formed in connection with the transaction. "We are buying Shaw Media at an attractive price, financing it prudently and the transaction is immediately accretive on an earnings and free cash flow per share basis. This combination will deliver strong free cash flow which will allow the company to de-lever quickly while maintaining its current dividend."

"We believe these two companies will form a winning combination. Their complementary mix of assets and strong management teams fit extremely well together," said JR Shaw, Executive Chair, Shaw Communications Inc. "This transaction represents an exciting new chapter and allows us, as a family, to participate in what we see as a very successful future for Corus, one that will support a vibrant Canadian broadcast system."

Shaw Media's assets include the specialty channels Food Network Canada, HGTV Canada, DIY Network Canada, Slice, Lifetime, History Canada, H2, Showcase, National Geographic Canada, Nat Geo Wild Canada, Action, MovieTime, IFC Canada, Global News: BC1, BBC Canada, DejaView, Crime + Investigation, DTOUR and FYI. It also includes Global Television's national conventional service with stations in Vancouver, Okanagan, Edmonton, Calgary, Lethbridge, Saskatoon, Regina, Winnipeg, Toronto, Montreal, Halifax and Saint John.

On a fiscal 2015 basis, Corus and Shaw Media combined generated ~$1.9 billion in revenue, ~$619 million in adjusted EBITDA and ~$430 million of free cash flow. The transaction is expected to generate $40-$50 million of annual cost synergies to be realized within 24 months, in addition to significant revenue synergies.

Transaction Terms and Financing

Under the terms of the transaction, Corus has agreed to acquire 100% of Shaw Media for a total purchase price of $2.65 billion, representing a multiple of ~7.7x FY2015 consolidated reported adjusted EBITDA. Upon closing of the transaction, SCI will receive ~$1.85 billion in cash and ~71 million Corus Class B Shares at $11.21 per share, which is based on current volume weighted average trading prices on the Toronto Stock Exchange.

RBC Capital Markets is providing fully committed financing in connection with the transaction. The acquisition and the refinancing of existing Corus debt will be funded with $2.3 billion of committed credit facilities and $560 million of bridge financing. The bridge financing is expected to be replaced with a combination of new senior unsecured notes and a potential offering of subscription receipts for Corus Class B Shares.

Upon completion of the financing, at close of the transaction, Corus intends to redeem its 4.25% senior unsecured notes due February 2, 2020, of which $550 million principal (plus accrued and unpaid interest) is outstanding.

Pro forma the acquisition, including completion of the potential subscription receipt offering, SCI will own approximately 39% of Corus' total issued equity, including Class A and B Shares. SCI has agreed to hold and not sell any of its Corus Class B Shares for the first 12 months following closing. This holding restriction will expire with respect to one-third of the shares on each of the 12, 18 and 24 month anniversaries of closing (the "Lock-Up").

In addition, as a further sign of its support for the combined company, SCI has agreed to have 100% of its Corus Class B Shares, which are subject to the Lock-Up, participate in Corus' dividend reinvestment plan until at least August 31, 2017, so that the dividends payable on those shares will be paid with additional Corus Class B Shares. This not only signals SCI's on-going support for the company but also provides Corus additional cash flow that can be used to repay debt or be re-invested in the business.

"This is a pivotal transaction that will create one of Canada's leading integrated media and content companies, with the scale and media assets to succeed in the new regulatory environment," said Brad Shaw, Chief Executive Officer, Shaw Communications Inc. "Our significant investment in the new Corus demonstrates our commitment to the success of this powerful combination."

Corus and SCI have also agreed to enter into a Governance and Investor Rights Agreement upon closing of the acquisition. The Governance and Investor Rights Agreement will provide SCI with specified rights to nominate up to three members of the Corus Board of Directors, subject to certain continued minimum ownership thresholds; pre-emptive rights that allow it to maintain its pro rata ownership level of the Corus Class B Shares in various circumstances; and registration rights that require Corus to assist SCI in effecting sales of Corus Class B Shares through a prospectus qualification process.     

Pro forma Total Debt / LTM adjusted EBITDA will be approximately 4.0x at closing and, given the strong free cash flow profile of the company, Corus is expected to de-lever to below 3.0x by the end of FY2018, consistent with Corus' financial policies. The acquisition will be earnings and free cash flow per share accretive from the outset. Corus intends to maintain its current annualized dividend of $1.14 per Class B Share. Corus will continue to have a strong liquidity profile with approximately $300 million of revolving credit capacity and strong free cash flow.

The Special Committee, Formal Valuation and Board Recommendation

Corus appointed a Special Committee of independent directors of the Board of Directors of Corus to oversee the review and negotiation of the acquisition given the related party nature of the transaction.  Corus and SCI are affiliated companies since JR Shaw exercises effective voting control over Corus through the Shaw Family Living Trust, an entity ultimately controlled by him, and exercises similar effective control over SCI.  The Shaw Family Living Trust has provided a written commitment to Corus' Board of Directors indicating its support for the acquisition.    

The Special Committee was advised by Barclays Capital Canada Inc. ("Barclays") as independent financial advisor and valuator, and by Borden Ladner Gervais LLP as independent legal counsel. 

As independent valuator, Barclays has concluded that, subject to the assumptions, limitations and qualifications set out in its valuation as of January 12, 2016, the fair market value of Shaw Media is in the range of $2,450 million to $2,850 million.

Barclays has also provided an opinion to the Special Committee that, subject to the assumptions, limitations and qualifications set out in such opinion, the consideration offered for the purchase of Shaw Media is fair, from a financial point of view, to Corus.

RBC Capital Markets has also provided its opinion to the Board of Directors of Corus that, subject to the assumptions, limitations and qualifications set out in such opinion, the consideration to be paid under the transaction is fair from a financial point of view to Corus.

Following an extensive review and negotiation process, the Special Committee unanimously determined that the acquisition is in the best interest of Corus, and recommended to the Board of Directors of Corus that the final terms of the acquisition be accepted. In making its recommendation, the Special Committee considered among other things, the opinion of RBC Capital Markets and Barclays' valuation and fairness opinion.

The Board of Directors of Corus approved the proposed acquisition of Shaw Media following its acceptance of the unanimous recommendation of the Special Committee and has recommended that shareholders of Corus vote in favour of the transaction.

Approval Process

This transaction is subject to approval by the Canadian Radio-television Telecommunications Commission. It is also subject to approval by Corus' minority shareholders, at a special meeting of shareholders expected to occur in March 2016. More particularly, the transaction is subject to approval by more than 50% of the votes cast by Corus' Class A Voting and Class B shareholders, excluding any shares held by an "interested party" and any of their respective affiliates, each voting separately as a class, pursuant to the requirements of National Instrument 61-101 Protection of Minority Security Holders in Special Transactions, and of the Class B shareholders of Corus pursuant to the requirements of the Toronto Stock Exchange. As a result, shares held by JR Shaw, the Shaw Family Living Trust and their affiliates, will be excluded for the purposes of Corus shareholder approval. Subject to the receipt of all necessary approvals, the transaction is anticipated to close in the third quarter of fiscal 2016.  The transaction is also subject to listing approval by the Toronto Stock Exchange.

Advisors

RBC Capital Markets acted as exclusive financial advisor and Osler, Hoskin and Harcourt LLP acted as legal counsel to Corus in connection with this transaction.

The Special Committee was advised by Barclays as independent financial advisor and valuator, and by Borden Ladner Gervais LLP as independent legal counsel.

Investment Community Conference Call and Webcast

Corus will be holding a conference call for financial analysts to discuss this transaction as well as its Q1 2016 results today, Wednesday, January 13, 2016 at 7 a.m. MT / 9 a.m. ET.  Media are welcome to participate on a listen-only basis. To participate, the dial-in number for the conference call is 1.800.925.4693 (toll-free North America) or 416.641.6202 (local or international). PowerPoint slides will be posted 15 minutes prior to the start of the call on www.corusent.com in the Investor Relations section.

Non-IFRS Measures

This press release makes reference to certain non-IFRS measures.  These non-IFRS measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies.  Corus believes these non-IFRS measures provide additional information to complement IFRS measures by providing further understanding of operations from management's perspective. Accordingly, non-IFRS measures should never be considered in isolation or as a substitute for other financial measures determined in accordance with IFRS as issued by the International Accounting Standards Board. Corus presents non-IFRS measures, specifically EBITDA, adjusted EBITDA (which is also referred to by Corus as "segment profit" and by Shaw Media as "operating income before restructuring costs and amortization"), free cash flow and Pro forma Total Debt / LTM Adjusted EBITDA as it believes these non-IFRS measures are frequently used by securities analysts, investors and other interested parties as measures of financial performance and to provide a supplemental measure of operating performance and also to highlight trends that may not otherwise be apparent when relying solely on IFRS financial measures. The definitions of the non-IFRS measures contained in this press release are as follows:

EBITDA is calculated as net income before interest, income taxes, depreciation and amortization.

Adjusted EBITDA is calculated as EBITDA adjusted for items not indicative of Corus' core operating results, and not used in management's evaluation of the business segment's performance, such as: broadcast license and goodwill impairment; significant intangible asset impairments; debt refinancing; non-cash gains or losses and certain other income and expenses. 

Free cash flow is calculated as cash provided by (used in) operating activities less cash used in investing activities, as reported in the consolidated statements of cash flows, and then adjusting for the following items: cash used for business combinations and strategic investments and; cash received from strategic divestments; and cash due to parent. 

Pro forma Total Debt / LTM Adjusted EBITDA for Corus is calculated as the total debt of Corus to be assumed upon completion of the acquisition divided by the sum of the segment profit of Corus for the 12 months ended November 30, 2015, plus the operating income before restructuring costs and amortization of Shaw Media for the 12 months ended November 30, 2015.

About Corus Entertainment
Corus Entertainment Inc. is a Canadian-based integrated media and content company that creates, broadcasts, licenses and delivers content across a variety of platforms for audiences around the world. The company's portfolio of multimedia offerings encompasses specialty television and radio with additional assets in pay television, television broadcasting, children's book publishing, children's animation, animation software, and technology and media services. Corus' television brands include ABC Spark, Cartoon Network (Canada), CMT (Canada), Disney Channel (Canada), Disney Junior, Disney XD, Nickelodeon (Canada), OWN: Oprah Winfrey Network (Canada), Telelatino, TELETOON, Treehouse, W Network, YTV, Historia, La chaîne Disney, Séries+ and TÉLÉTOON. Its 39 radio brands include CKNW AM 980, Rock 101, Country 105, 630 CHED, Fresh Radio, JUMP! 106.9, Q107 and 102.1 the Edge. The company also owns Nelvana, an internationally renowned animation production company, Kids Can Press, Toon Boom and Quay Media Services. A publicly traded company, Corus is listed on the Toronto Stock Exchange (CJR.B). Experience Corus on the web at www.corusent.com.

This press release contains forward-looking information and should be read subject to the following cautionary language: 

To the extent any statements made in this report contain information that is not historical, these statements are forward-looking statements and may be forward-looking information within the meaning of applicable securities laws (collectively, "forward-looking statements"). These forward-looking statements may include, among other things, our objectives, goals, strategies, intentions, plans, estimates and outlook, including advertising, distribution, merchandise and subscription revenues, operating costs and tariffs, taxes and fees, and can generally be identified by the use of the words such as "believe", "anticipate", "expect", "intend", "plan", "will", "may" and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Forward-looking statements include statements regarding the various assumptions set out herein and, among other things, information regarding the timing of completion of the transaction on terms set out in the share purchase agreement with SCI, if at all, satisfaction of all conditions precedent to the transaction, statements regarding performance of the combined company, the benefits and costs of the transaction and the pro forma capitalization, business, operations, financial performance (including dividends, financial leverage and adjusted EBITDA) and cash flow profile of the combined company, the ability to realize synergies following closing in the time and manner anticipated, the intention to redeem the outstanding Corus senior notes, the receipt of proceeds of Corus' financing arrangement and completion of the company's planning financing transactions. Although Corus believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, including without limitation factors and assumptions regarding completion of the transaction on terms set out in the share purchase agreement and in a manner consistent with management expectations, the timing of completion of the transaction, the accuracy of management's assessment of the effects of the completion of the acquisition, including the ability to generate synergies consistent with management expectations, maintenance by the Corus Board of Directors of the dividend on the Class B Non-Voting Shares at its existing level, the ongoing performance of the businesses of Corus and Shaw Media, advertising, distribution, merchandise and subscription revenues, operating costs and tariffs, taxes and fees and actual results may differ materially from those expressed or implied in such statements. Important factors that could cause actual results to differ materially from these expectations include, among other things: our ability to attract and retain advertising revenues; audience acceptance of our television programs and cable networks; our ability to recoup production costs, the availability of tax credits and the existence of coproduction treaties; our ability to compete in any of the industries in which we do business; the opportunities (or lack thereof) that may be presented to and pursued by us; conditions in the entertainment, information and communications industries and technological developments therein; changes in laws or regulations or the interpretation or application of those laws and regulations; our ability to integrate and realize anticipated benefits from our acquisitions, including the acquisition of Shaw Media and to effectively manage our growth; our ability to successfully defend ourselves against litigation matters arising out of the ordinary course of business; changes in accounting standards, our ability to execute strategic plans and changes to strategic plans, downgrades in our financial strength or credit ratings, volatility and correlation of equity and debt markets, interest rates, the failure to realize some or all of the expected benefits of the transaction and the market for subscription receipts, notes and Class B Shares and the prices of subscription receipts, notes and Class B Shares. Additional information about these factors and about the material assumptions underlying such forward-looking statements may be found in our Annual Information Form and our management's discussion and analysis which are available on Corus' website at www.corusent.com as well as on SEDAR. Corus cautions that the foregoing list of important factors that may affect future results is not exhaustive.

When relying on our forward-looking statements to make decisions with respect to Corus, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Unless otherwise required by applicable securities laws, we disclaim any intention or obligation to publicly update or revise any forward looking statements whether as a result of new information, events or circumstances that arise after the date thereof or otherwise.

The pro forma financial information set forth in this document should not be considered to be what the actual financial position or other results of operations would have necessarily been had Corus and Shaw Media operated as a single combined company as at, or for, the periods stated.

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SOURCE Corus Entertainment Inc.

Sally Tindal, Vice President, Corporate Communications, Corus Entertainment, 416.479.6107, [email protected]