Corus Entertainment buying Shaw’s media arm for $2.65 billion

Corus Entertainment announced today that it is buying Shaw Media, the Calgary-based communications company’s media arm, for $2.65 billion.

Shaw Media, which controls important pay channels like HGTV and Food Network Canada, as well as Global, reported revenue of $232 million in the three months ending August 31st, with an operating income before restructuring and amortization of $48 million. It represents a smaller portion of Shaw’s overall revenues than rivals Bell or Rogers’ respective media divisions, but plays an important role in distributing specialty pay TV channels to television subscribers across the country.

Corus, based in Toronto, was started in 1999 by JR Shaw as a spinoff of Shaw Communications, largely to prevent regulatory scrutiny, but over the years Shaw Media contracted within its parent company, leaving the opportunity open for Corus to acquire the assets. Still, for regulatory purposes, the CRTC considers them “related,” forcing them both to carry three channels from rivals for every one they carry of one another.

Corus has a larger foothold in Ontario, owning two of Toronto’s largest radio stations, Q107 and Edge 102, along with popular speciality programming like Disney Channel Canada, Nickelodeon Canada, Teletoon, YTV, ABC Spark, W Network and more. It also, until very recently, held the rights to HBO content in Western Canada, which it ceded to Bell Media for $211 million.

After the deal goes through, Shaw Communications will own 39 percent of Corus total equity, including a number of public Class A and Class B shares, which the company agrees not to sell for at least a year.

Together, the unified company will own 45 television channels, 39 radio stations, myriad digital assets, including the Treehouse GO, YTV GO and Nick GO apps, as well as Nelvana, a mobile game studio focusing on licensed children’s content.

The deal is expected to generate between $40 and $50 million in “annual cost synergies” between the two companies, which together employ more than 4,000 people across the country. It’s unclear whether any layoffs are planned at this time.

The move comes just a few weeks before the CRTC begins forcing television providers to offer “skinny basic” packages, where core channels such as CTV, Global, CBC and other Canadian channels can be purchased bundled for $25, with pick-and-pay options added on top. Corus and Shaw Media both control a number of those speciality channels that users, under these new CRTC regulations, may choose to forgo if television providers charge too much to separate them out.

Brad Shaw, SCI’s CEO, said of the deal, “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. Our significant investment in the new Corus demonstrates our commitment to the success of this powerful combination.”

Pending regulatory approval, the deal is expected to close in Q3 2016, the same time period as Shaw’s $1.6 billion acquisition of Wind Mobile. Brad Shaw told Global News that the sale of its media assets will allow Shaw Communications to be “a pure-play connectivity provider with an attractive growth profile.”

Corus today reported Q1 2016 revenue of $228.3 million, with an earnings per share of $0.47.