Sale of Shaw stake could mean more deals for Corus: analyst
Corus Entertainment Inc. watched its share price plunge after Shaw Communications Inc. sold its stake in the television network owner, a plot twist analysts saw coming as part of Shaw’s long-term plans to shed media assets and focus instead on its higher-growth wireless business.
Calgary-based Shaw announced after markets closed Tuesday it agreed to sell 80.63 million class B Corus shares for $548 million or $6.80 per share. A group of banks led by TD Securities Inc. bought the entire stake and will sell it off to smaller investors after Shaw couldn’t find a single buyer, in part due to Canadian ownership restrictions.
Toronto-based Corus’ stock price fell almost 17 per cent to $6.70 Wednesday, erasing about half of the 65 per cent year-to-date price growth following its performance in 2018 when it fell to a record low.
The sale didn’t come as a surprise to Corus chief executive Doug Murphy, who said it won’t change the business.
“We have always anticipated the eventual sale of these shares at such time as determined by Shaw Communications,” Murphy said in a statement. “Our business operations remain unchanged as a result of this transaction, and we look forward to continuing to execute our strategy as we evolve and grow our business to create value for all of our stakeholders.”
Corus was created in 1999 as a spinoff of Shaw so Corus could focus on content and Shaw on delivering it through cable. In 2016, Shaw sold Corus the rest of its media assets for $2.65 billion, using the proceeds to buy wireless upstart Wind Mobile, now called Freedom Mobile. As part of the transaction, Shaw received 71 million Corus shares that were worth about $800 million at the time.
But it’s been a tough few years for traditional broadcasters, who are fighting to sustain subscription and advertising revenues as audiences spend more time online. Despite the challenges, Corus’ financial results have topped analysts’ expectations in past two quarters thanks to some advertisers returning to TV.
Industry analyst Kaan Yigit, president of Solutions Research Group, said Corus has a decent collection of assets, but that the new world of Netflix and social media’s dominance in advertising is “cruel for mid-sized players.” The share sale could give Corus more leeway to look for a deal, whether it’s a large buyer or in pieces to niche players, Yigit said in an email.
Our business operations remain unchanged as a result of this transaction
The biggest problem, however, is “out-dated” CRTC rules that “hinder a larger deal by making it unattractive or not allowing them to have the flexibility needed,” he said.
While Corus’ future remains uncertain due to the unpredictable nature of the TV market, analysts have been impressed with its recent performance. Accenture estimates that TV ads will recover to 47 per cent of overall ad spending, even as the number of people without a TV subscription grows.
For Shaw, the sale is largely viewed as a good thing by industry analysts even though the value of its stake dropped over the past three years.
“This transaction is a positive for Shaw given the capital that will be required to expand its wireless network and acquire high-band spectrum in preparation for 5G,” Canaccord Genuity analyst Aravinda Galappatthige wrote in a note to clients.
Citi analyst Adam Ilkowitz also noted to clients that Shaw needs the cash for wireless spending.
“We view the stake sale as a logical move given the need to invest in the business and the low dividend yield attached to the investment,” Ilkowitz wrote.