Though few would say it to his face, the truth is, Canada’s corporate elite has always underestimated Jim Shaw. The loud-talking, Harley-riding, larger-than-life CEO of Calgary’s Shaw Communications has just never fit the profile of your typical Canadian Titan.
After taking over from his father in 1998, he walked around with what some industry watchers mistook for a takeover target on his back. A decade ago, when Canwest Global Communications bought Hollinger’s newspaper and multimedia assets for $3.5 billion, the corporate empire founded by the late Izzy Asper was said to be on a convergence-inspired expansion that would eventually eclipse the Shaw family business, and probably consume it as well.
In the early-2000s, when Shaw posted a string of money-losing quarters, critics complained about having the business run by a rough-edged chip off legendary JR Shaw’s staid old block. Even after turning things around, Shaw the Younger was seen as a minor character in what would surely be a short chapter in Canadian corporate history. Despite repeated declarations that there were no plans to sell out, the Shaw cable empire was frequently said to be “in play.”
But no more. Jim Shaw has just proven himself to be a shark with a prodigious appetite. And he’s now prowling national waters, circling the prized assets of his family’s decades-old rival – Winnipeg’s Asper clan.
How did this happen? While a mountain of debt was pushing Canwest to seek court protection from its creditors last year, Shaw was constructing a Winston Churchill study in his Calgary mansion. The room – which has a hidden toilet known as the “Batcave” – is where Shaw plans his strategy. And like Sir Winston, he obviously knows how to change the landscape of battle by opening up a surprise second front. Indeed, while industry analysts were still focused on when he’d aggressively enter the wireless phone market, Shaw went after distressed Asper empire assets instead.
On Feb. 12, Shaw’s company announced a tentative deal to acquire 80% voting control of Canwest broadcasting operations and 20% of the equity in a new private company – for a fire sale price of $95 million. The proposed transaction – which does not include Canwest newspaper assets – would put Shaw in control of Global, the nation’s second-largest private broadcaster, and CW Media, which owns the coveted assortment of specialty channels that Canwest and investment banking giant Goldman Sach bought from Alliance Atlantis for $2.3 billion in 2007. Shaw still needs regulatory approval, and he will need to strike an agreement with Goldman, which holds a 65% equity stake in CW. If he can close the deal, the goateed maverick at the head of Western Canada’s dominant cable company will instantly become one of the country’s most influential media barons.
But this is a fight, and it’s not nearly over. The Shaw bid – which won support from the Canwest board – was opposed at the last minute by Canwest CEO Leonard Asper. He and his siblings tossed a wrench in the court process by making an unexpected counter-offer with Goldman Sachs, Toronto-based private equity fund Catalyst Capital and former Rogers Communications executives, including John Tory. “Our proposal is superior to the Shaw proposal in terms of value, certainty and timing,” said Newton Glassman, a Catalyst managing partner. “It is difficult to see how any proposed deal can be effected without Goldman Sachs.”
The last-minute gambit laid bare the long-running rivalry between the Aspers and the Shaws, but it was rejected by the courts after a full day of debate on Feb. 19. “Len teaming up with a small bondholder is interesting,” says Shaw president Peter Bissonnette. “Len is on the board of Canwest, which actually approved Shaw’s bid. And you would think there is a fiduciary duty there to maintain some sort of consistency from a Canwest point of view.”
Bissonnette says the Asper bid was “a dollar short and a day late. Everybody had the same opportunity to enjoin in the process. The rules were clear. The dates were clear. At the end of the day, the Canwest special committee and bondholders had recommended and approved our proposal. And we were supposed to be looking at just a perfunctory blessing of that by the court.” His company will now focus on negotiations with Goldman. “We offer a strategic partnership,” Bissonnette says. “Our objective, frankly, is to own the company after helping it out of CCAA in a timely fashion.”
If successful, Shaw’s purchase of Canwest’s broadcasting division would give his company exclusive content to offer across its various distribution pipelines, meaning cable, satellite, Internet, home phone, and eventually wireless platforms, which could make customers easier to attract and hold on to. But that’s not what makes the investment really interesting.
When it comes to broadcasting, Shaw has always been a disruptive force. He calls the Canadian Television Fund a wastebasket, while mocking local broadcasters for producing shows “nobody wants to watch.” In 2001, he refused to carry a preview for a channel targeting the gay community to spare heterosexual subscribers from having to see it. To protest CRTC content restrictions in 2005, Shaw had his company put a link on its website that read: “If you want HBO, click here.” Every time that happened, a letter requesting more U.S. content was automatically sent to Canadian regulators. The link was removed, at the request of the regulator, after about 100,000 letters were issued.
More recently, Shaw generated headlines by bumping heads with CRTC chairman Konrad von Finckenstein during the heated fee-for-carriage debates. Broadcasters like CTV and Global insist they need more money to create local programming and that Canadian cable and satellite companies should be forced to help them out by paying to distribute their signals. Distributors like Shaw and Rogers Communications (which owns this magazine), on the other hand, argue that carriage fees would amount to a bailout for mismanaged broadcasters, one that would effectively tax consumers because the costs would inevitably be passed along to viewers.
But if Shaw wins Canwest assets, one of the top television critics in the land will become a Canadian TV mogul. And that could put him in a position to kill Canwest’s support for carriage fees. “I can’t see the deal enhancing the position that we should have fees for carriage,” says one top cable industry insider. “It could well silence Canwest. Nobody is going to say anything until the deal is approved by the commission, but, you know, just read the Shaw documents [on the topic].”
Whatever happens, Shaw has the Aspers playing defence. “The western corporate torch has been passed,” DBRS debt analyst Chris Diceman notes. And that shows JR Shaw made no mistake when handing down the CEO office to his son.
Industrial psychologists typically advise company founders to look outside the family when planning succession. “You can hire better than you can sire,” Alfred Cuddy famously said, after a public family battle threatened to tear apart his multimillion-dollar Ontario poultry operation.
According to succession studies, family-run businesses fail at least 50% of the time when control is passed from the first generation to the next. And that’s what makes Jim Shaw so impressive. He had no intention of following in his father’s footsteps.
Notorious for fistfighting his way through high school, Shaw tried independent ventures after graduating, most of which involved driving a truck. He gave university a try, but dropped out and started a Christmas tree operation with a local pal. That expanded into Jim’s Tree Moving business, which was promoted with a chicken named the Tree Trucker. But in his early 20s, the family’s rapidly growing cable business (and JR Shaw’s iron will) sucked him in. He started at the bottom, installing cable boxes, happily driving a commercial vehicle. The rest, as they say, is history. Shaw moved up the ranks, proving himself at each new level. According to insiders, unlike many family successions, JR Shaw pretty much stopped calling the shots after the baton was passed. And under his son’s watch, the company has made some of its boldest moves.
Jim Shaw led the hostile takeover of WIC (Western International Communications), ending up with its CanCom satellite system and dozens of radio stations and specialty TV channels after a heated fight with Canwest, which acquired WIC’s conventional television assets. In 1999, he spun out WIC assets into publicly traded Corus Entertainment. In 2001, he acquired Moffat Communications, expanding his company’s cable empire in Edmonton and Winnipeg. Four years later, Shaw fired a shot across the bow of Telus by launching Internet-based phone services, signing up 100,000 customers in just 10 months. “We’re going to try and kick those bunnies through the goal posts,” he told a reporter at the time, referring to the rabbits in Telus’s ads. “I’m going to squash an iguana. I don’t even like fish. I can now hate all animals. I went from an animal lover to an animal hater, just because of Telus.”
The 52-year-old chief executive is clearly a treat for profile writers. He’s a fierce competitor, who isn’t afraid to give a good quote or generate colourful content of his own. PR professionals don’t typically advise executives to show up at shareholder meetings dressed up like TV mobster Tony Soprano. Skipping out on a quarterly conference call with analysts to hit the links with Tiger Woods isn’t listed under best practices in any investor-relations handbook. But that stuff is par for the course with Shaw – who proudly admits he’s “a little off the mark.”
Simply put, the western Canadian executive is a country-style cross between Sir Winston, his hero, and Canadian auto-parts king Frank Stronach. He has the Brit’s politically incorrect wit. And like Stronach, he is just too confident as an entrepreneur to worry about what others think about his personality. Shaw can shoot off his mouth and hold his head high because he wears his persona like a badge of honour. He is his own man and thinks his abilities and accomplishments should speak louder than how he got his job. That, perhaps, helps explain why the company once issued a memo warning employees not to refer to him as “junior.”
Journalists like to call Shaw a “redneck.” He’s the “industry bad boy” or “cable’s cowboy.” A reputation for playing as hard as he works follows him still. But that’s about as far as the public discussion of Shaw’s personality goes. The man himself admits his wild side almost got out of hand at one point – but, for the record, it has not influenced his reputation as a corporate leader one way or another.
Tennessee billionaire Otis Mason Hawkins, a U.S. value investor known for making big bets as an institutional asset manager, used to be Shaw’s major non-family shareholder. He is a man of few words, at least for the media. But the ones he uses to describe Shaw are all good. “Jim is a very, very focused owner-operator, a terrific executioner of operational detail and a sagacious capital allocator. That’s all I’ve got to say.”
Phil Lind, vice-chairman of Rogers, probably knows Shaw as well as anyone. “He is a very, very bright guy with a tremendous record of success,” he says. “He has somewhat unorthodox characteristics sometimes, but does that matter if the results are as good as they are? And he has fun. I think he is great. When you get to know him, he is just a terrific guy and smart as hell.”
After spinning out Corus, Jim Shaw insisted he didn’t foresee future content transactions. “We’re probably as big as we need to be,” he told a reporter in 2002, adding he’s basically happy being “just a cable guy.” That, of course, didn’t stop him from entering the Internet phone business when the time was right. Today, in one respect, Shaw is simply following his father’s footsteps by attempting to further expand the family empire’s reach beyond digital pipes. After all, when JR Shaw moved to Alberta from Ontario in the ’60s, he was in the pipe-coating business. After seeing little room to grow, he launched Capital Cable to serve what he rightly predicted would be consumer demand for more channels. The opportunity of a lifetime was presented to JR Shaw, and he grabbed it, and that is exactly what’s happening again, thanks to the collapse of Canwest, DBRS analyst Diceman says.
DBRS recently upgraded Shaw’s debt to BBB, giving it an investment-grade rating with a stable trend. In the fiscal first quarter ended Nov. 30, Shaw posted net earnings of $114 million, or 26cents a share, down from $124 million, or 29cents a share, in the same three-month period a year earlier (factoring several one-time items). But excluding non-operating items, such as an $82-million debt retirement, Q1 net income would have been $180 million, up from $122 million.
According to Shaw, Canwest will help the company enhance its existing residential broadband Internet service, offering growth opportunities while helping to differentiate a wireless service with more proprietary content. Diceman agrees with the merits of the takeover, and isn’t at all concerned about the prospects. Shaw has a $12-billion enterprise value, he points out. A $100-million acquisition is hardly daunting. “Jim is the son of the business founder,” he says, “but he clearly knows the business, and he surrounds himself with a very in-tune and capable management team, so we see very strong results.”
Not everyone on the Street is so sure. “The industry’s investments in media assets have not generated stellar returns,” points out a report issued by UBS analyst Phillip Huang. “We believe the investment in media assets, the inherent uncertainties related to the impact of launching a wireless business, and intensifying competition with Telus will increase Shaw’s risk profile in 2010.”
But proponents of the deal insist a lot has changed in the media business over the past 10 years. A decade ago, AOL-Time Warner attempted to combine content and distribution, to disastrous effect. Gerald Levin, the former Time Warner chief who helped orchestrate the merger, now says it was the “worst deal of the century.” That’s enough to scare off investors, but BMO Capital markets analyst Tim Casey sees the Canwest transaction as a good long-term deal for Shaw.
Ten years ago, he recently explained in a research note, convergence deals blew up because of the prices being paid for content. In Canada, the two most notorious deals were BCE’s acquisition of CTV, and Canwest’s purchase of Hollinger. But both of those were poorly timed at the top of the cycle and based on over-aggressive profit expectations. In 2010, Casey points out, we are at the bottom, or at least coming off the bottom, of the advertising cycle. “It’s a very dangerous phrase,” he concludes. “But we think it’s different this time.” Diceman agrees. “What’s changed,” the debt analyst says, “is broadband.” In 2000, only 12.1% of all Canadian households had a broadband connection to the Internet (speeds in excess of 64 Kbps). Today, more than 69% of Canadians have access to broadband, which makes the purchase of downloadable music and video more feasible.
According to Lind, nobody should get their cables in a knot over Shaw’s newest move. The simple fact of the matter, the Rogers executive says, is that “cable companies are getting more interested in content,” whether the media finds “it trendy or not.” Convergence, Lind points out, has never been a bad word or a recipe for guaranteed failure.
Bissonnette shrugs off convergence concerns. As he sees it, a decade ago, AOL was “almost Cro-Magnon in comparison to what we can do now.”
Whatever happens, the Canadian television industry has just gotten more interesting, maybe even a bit wild. After all, the Canadian broadcasting clubhouse now has a Harley parked outside its doorstep. By now, it should be clear to all those who figured Jim Shaw didn’t have what it takes – that isn’t a takeover target on the back of his leather jacket. It’s a sign, and it says: “Eat my dust.”