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Corus Entertainment Inc.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- filer made three acquisitions considered to be "acquisitions of related businesses" -- one acquisition considered to be immaterial relative to the other two acquisitions -- filer requests exemption from the requirement to include separate financial statements for each related business in the filing of a business acquisition report (BAR) -- it is impractical to prepare the relevant financial statement disclosure for the immaterial acquisition -- filer granted relief to include alternative financial information regarding the least significant related business.
Applicable Legislative Provisions
National Instrument 51-102 Continuous Disclosure Obligations, ss. 8.4, 13.1.
March 7, 2014
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF CORUS ENTERTAINMENT INC. (the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for relief pursuant to Part 13 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) exempting the Filer from the requirements to include in a business acquisition report (BAR), certain financial statements required pursuant to Item 3 of Form 51-102F4 and Section 8.4 of Part 8 of NI 51-102 relating to the Acquisitions (as defined herein), on the condition that the Filer include in the BAR, the Alternative Financial Statements (as defined herein) in the BAR (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application (the Principal Regulator); and
(b) the Filer has provided notice that Section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland (collectively with Ontario, the Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation governed by the Canada Business Corporations Act.
2. The Filer's head office is located at Corus Quay, 25 Dockside Drive, Toronto, Ontario, M5A 0B5.
3. The Filer is a reporting issuer in each of the Jurisdictions and is not in default of its reporting issuer obligations under the securities legislation of any of the jurisdictions of Canada.
4. The Filer's Class B Non-Voting Shares are listed and posted for trading on the Toronto Stock Exchange under the symbol "CJR.B".
5. The Filer is a diversified Canadian communications and entertainment company whose principal business activities are: the operation of radio stations; the operation of specialty television networks, pay television services and conventional television stations; and the Corus content business, which consists of the production and distribution of films and television programs, merchandise licensing, publishing and animation software.
6. On March 4, 2013, the Filer entered into three separate purchase agreements with Bell Media Inc. (Bell) pursuant to which the Filer agreed to acquire from Bell: (a) the 50% interest in a television network business, TELETOON Canada Inc. (Teletoon and such 50% interest, the Teletoon Interest) that was not already owned by the Filer; (b) a 50% interest in the French-language television specialty channels, Historia and Séries+s.e.n.c. (H&S); and (c) two Ottawa-based broadcasting radio stations known under the call letters CKQB-FM and CJOT-FM (Radio Stations). Each of Teletoon, H&S and the Radio Stations were acquired by Bell as part of its acquisition of Astral Media Inc. (Astral) pursuant to a plan of arrangement transaction (the Bell-Astral Arrangement) that was completed on July 5, 2013, prior to the sale by Bell to the Filer of the various assets described herein.
7. While the Filer had previously held a 50% interest in Teletoon, it did not historically consolidate the Teletoon financial results for accounting purposes, and began doing so for the first time as of September 1, 2013, following certain changes to the board composition of Teletoon that followed the completion of the Bell-Astral Arrangement.
8. In addition, the Filer entered into a separate purchase agreement on November 29, 2013, with Shaw Media Inc. (Shaw) to acquire the remaining 50% interest in H&S (together with Teletoon, the Television Businesses, and together with the Radio Stations, the Acquired Assets).
9. On January 1, 2014, the Filer completed its acquisition of the Television Businesses (collectively, the Television Acquisitions) from Bell and Shaw, for an aggregate purchase price of $526.2 million, subject to certain working capital adjustments.
10. On January 24, 2014, the Filer received approval by the Canadian Radio-television Telecommunications Commissions (CRTC) to close the acquisition of the Radio Stations (the Ottawa Radio Acquisition and together with the Television Acquisitions, the Acquisitions). The Filer completed its acquisition of the Radio Stations on January 31, 2014, for an aggregate purchase price of $13.0 million, subject to certain working capital adjustments.
11. On their own, for the purposes of the threshold being met under the investment test (the Investment Test), the Filer had determined that the consolidated investments in the Television Businesses equalled approximately 24% of the consolidated assets of the Filer based on the most recent audited annual financial statements of the Filer. The consolidated investment of the Filer in the Radio Stations, on its own, equals approximately 0.6% of the consolidated assets of the Filer, also based on the most recent audited annual financial statements of the Filer. Accordingly, the Acquisitions constitute a significant acquisition for the purposes of NI 51-102 and the Filer is required to file a BAR within 75 days of the completion of the Acquisitions pursuant to Section 8.2 of NI 51-102.
12. The Ottawa Radio Acquisition is immaterial relative to the two other relevant acquired businesses -- the purchase price for the Teletoon Interest was $249 million, while the purchase price for H&S in its entirety was $277.2 million, subject in each case to certain working capital adjustments. By contrast, the purchase price/investment for the Radio Stations assets is only $13.0 million, representing approximately 2.41% of the combined purchase price of approximately $539.2 million paid for the Acquired Assets as a whole, and 0.6% of the Filer's consolidated assets of approximately $2.2 billion as of August 31, 2013 (using the last set of audited annual financial statements).
13. The Radio Stations previously formed part of Astral's sizable radio business, and the assets comprising the Radio Stations were held in part by Astral Media Radio Inc. and in part by Astral Media Radio, G.P. In order to facilitate the sale of the Radio Stations to the Filer and to break out the specific assets to be acquired by the Filer from the balance of the Astral/Bell radio businesses, Bell had reorganized the assets relevant to the two Radio Stations into 8384851 Canada Inc. (Newco 1) and 8504598 Canada Inc. (Newco 2, and collectively with Newco 1, the Radio Station Newcos), two newly created entities incorporated on May 29, 2013. The assets and liabilities constituting the business of the Radio Stations were transferred from Bell to the Radio Station Newcos on July 4, 2013 (the Ottawa Radio Reorganization). The shares of the Radio Station Newcos were subsequently acquired by the Filer upon the closing of the Ottawa Radio Acquisition on January 31, 2014.
14. The Filer is unable to prepare the required financial statements for the Radio Stations in accordance with Section 8.4 of NI 51-102 for the following reasons:
(a) Stand-alone financial statements of the Radio Stations have never been prepared. The Radio Stations historically did not represent a separate operating segment or reporting unit within either Astral's or Bell's radio broadcasting business and indeed represented only a very small discrete portion of the assets of that business.
(b) As part of the Ottawa Radio Reorganization completed in the context of the Bell-Astral Arrangement, the assets and liabilities comprising the Radio Stations had recently been transferred from Bell to Newco 1 and Newco 2, newly-formed, wholly-owned direct subsidiaries of Bell. Newco 1 and Newco 2 were each formed on May 29, 2013 and have no prior historical financial statements. As such, financial statements would have to be re-created retroactively with no clear basis for presentation.
(c) The Filer understands that, historically, the reporting of the assets and liabilities of the Radio Stations were generally commingled with the assets and liabilities of the other radio broadcasting assets for Astral/Bell.
15. Pursuant to Section 8.4 of NI 51-102 and Item 3 of Form 51-102F4, absent the Exemption Sought, the Filer would have been required to include in its BAR for the Acquisitions, the following financial statements:
(a) an audited statement of comprehensive income, a statement of changes in equity and a statement of cash flows for each of Teletoon and H&S, in each case for the year ended August 31, 2013, and an audited statement of financial position for each as at the end of that year;
(b) an audited statement of comprehensive income, a statement of changes in equity and a statement of cash flows for the Radio Stations, in each case for the transition year from September 1, 2012 and ended July 5, 2013, and an audited statement of financial position as at that date;
(c) an unaudited statement of comprehensive income, statement of changes in equity and statement of cash flows for each of Teletoon, H&S and the Radio Stations, in each case for the year ended August 31, 2012, and an unaudited statement of financial position for each as at the end of that year;
(d) an unaudited interim financial report for each of Teletoon, and H&S for the three month interim period ended November 30, 2013, and an unaudited interim financial report for the comparable period in the preceding financial year;
(e) an unaudited interim financial report for the Radio Stations for the three month interim period ended December 31, 2013 (no comparative prior period would be necessary as a result of Section 8.9 of NI 51-102);
(f) a pro forma statement of financial position of the Filer as at the date of the Filer's most recent statement of financial position filed, at November 30, 2013, that gives effect, as if they had taken place as at the date of that pro forma statement of financial position, to each of the Acquisitions;
(g) a pro forma income statement of the Filer that gives effect to the Acquisitions for:
(i) the Filer's financial year ended August 31, 2013; and
(ii) the Filer's three month interim period ended November 30, 2013
as if they had taken place at the beginning of the 2013 financial year; and
(h) pro forma earnings per share based on the pro forma financial statements referred to in paragraph (f) above.
16. The Filer is preparing the required financial information pursuant to Section 8.4 of NI 51-102 and Item 3 of Form 51-102F4 in respect of the Television Acquisitions.
17. The Filer proposes to include the following alternative financial statements regarding the Radio Stations in the BAR (the Alternative Financial Statements) as a condition of obtaining the requested relief:
(a) an unaudited statement of the assets to be acquired and liabilities to be assumed by the Filer in respect of the Radio Stations as at December 31, 2013; and
(b) an unaudited income statement of the Radio Stations' revenues and expenses for a three month period ended December 31, 2013.
18. The Alternative Financial Statements will be prepared in accordance with accounting policies permitted by International Financial Reporting Standards.
Decision
The Principal Regulator is satisfied that the decision meets the test set out in the Legislation for the Principal Regulator to make the decision.
The decision of the Principal Regulator under the Legislation is that the Exemption Sought is granted provided that the Filer includes the Alternative Financial Statements in the BAR in respect of the Ottawa Radio Acquisition.
"Shannon O'Hearn"
Manager, Corporate Finance
Ontario Securities Commission