Shaw Communications is selling its media division to Corus Entertainment for $2.65 billion, dividing the Shaw telecom empire into separate media and network companies as it moves to sharpen its focus.

By Peter Henderson, for the Canadian Press

Shaw Communications is selling its media division to Corus Entertainment for $2.65 billion, dividing the Shaw telecom empire into separate media and network companies as it moves to sharpen its focus.

Analysts say the deal should help Shaw (TSX:SJR.B) fund its $1.6-billion purchase of Wind Mobile, announced in December, and positions the Calgary-based cable, Internet and satellite TV company to better compete with its rivals as it moves into the wireless market.

The sale comes at a time when the Canadian media industry is facing an uncertain future as a looming CRTC-mandated change will give customers more control over which channels are included in their TV packages and traditional media faces increasing competition from digital alternatives.

“With the previously announced acquisition of Wind and sale of Shaw Media, Shaw will be focused on delivering consumer and small business broadband communications supported by its best-in-class wireline, WiFi and wireless infrastructure,” Shaw Communications CEO Brad Shaw said in a statement.

Corus (TSX:CJR.B) will add the Global Television network and 19 specialty channels including HGTV Canada, Food Network Canada and Showcase to its portfolio, which already includes  a number of other specialty TV channels as well as a network of 39 radio stations and the Nelvana animation studio.

Shaw Communications will become a large shareholder in Corus as a result of the deal, which involves both cash and shares. Both Corus, which was spun off from Shaw in 1999, and Shaw Communications, are controlled by the Shaw family.

Edward Jones & Co. telecom analyst David Heger said Shaw’s media business, while still producing solid results, had less prospects for growth than its new wireless property.

“Corus can be the cash-cow media business, while the Shaw side is where they are, in the near term, making some investments with future revenue potential,” he said.

In March, new CRTC rules come into effect that mean Canadian TV subscribers will be able to pick individual channels to add to their subscriptions on an a la carte basis, or in small packages that they design themselves.

That could mean a lot less revenue for the less popular specialty channels, which have until now been supported by their inclusion in packaged bundles from the TV providers.

At the same time, traditional media producers are facing increasing competition from online content and digital alternatives.

“Now at least, if you’re Shaw, if nothing else people know they need a high-speed Internet connection to be watching TV online and you can get a piece of that,” Heger said.

The sale of Shaw Media to Toronto-based Corus will move about $1.85 billion in cash to Shaw Communications, which will also receive about 71 million Corus shares representing about 39 per cent of the company.

Euro Pacifica analyst Robert Goff said the cash value of the deal helps to answer concerns that arose about Shaw’s debt when the company said it would spend $1.6 billion on Wind Mobile.

“From a Shaw perspective, it realizes a strategic realignment and generates proceeds to fund the acquisition of Wind Mobile,” he said.

In a research note, Canaccord Genuity analyst Aravinda Galappatthige said the new money could help address the gap between Wind Mobile’s increasingly outdated 3G network and the 4G LTE offerings of its competitors.

“With a less levered Shaw, it is possible that the company can now accelerate its wireless network upgrade plans for Wind and/or become more aggressive on the wireless subscriber acquisition front,” he said.

The deal is expected to close by May 31, pending approval by regulators and Corus shareholders. The Wind deal is also expected to be closed by about the same time.

This story is republished with the permission of Canadian Press.