GATINEAU – That sentence was one of the first few spoken by CRTC chairman Konrad von Finckenstein this morning as the hearing into CanWest Global`s proposed purchase of the regulated broadcasting assets of Alliance Atlantis began.
And for much of the morning, the discussion settled on clauses and pieces of the transaction that talk about what CanWest can and can`t do when it comes to the operation of the new business, which will include the Alliance Atlantis stable of specialty channels as well as CanWest`s broadcasting assets.
As previously reported on several occasions by Cartt.ca, investment banker Goldman Sachs is providing the bulk of the equity financing for this acquisition while CanWest is kicking in some money and its own broadcasting assets. The deal also says that CanWest has to buy out Goldman Sachs by 2011.
The broadcasting businesses are to be held in various indirect subsidiaries of CW Investments, in which CanWest indirectly holds two-thirds of the voting shares and an approximate 35% equity interest, and Goldman Sachs indirectly holds one-third of the voting shares and an approximate 65% equity interest, inclusive of all transaction costs.
While much of the speculation prior to the hearing centred on how CanWest might be asked to boost its equity stake in the new combined media company higher than its planned $200 million, that issue was not raised by the CRTC panel of chairman von Finckenstein, telecom vice-chair Len Katz, broadcasting vice-chair Michel Arpin and commissioner Elizabeth Duncan.
So, the bulk of this morning was all about determining who will control what and how CanWest is allowed to behave under the structure of the deal.
Chairman von Finckenstein was particularly concerned about the constraints on CanWest in terms of the veto power held by GS for certain items that might be outside the normal course of business or would violate certain financial limits.
In his opening remarks, Goldman Sachs managing director Gerry Cardinale made it clear early: “We do not see ourselves as a strategic investor in the broadcast assets, but rather a financial backer, supporting CanWest,” he said. “I want to ensure you that GS does not wish to control any Alliance Atlantis or CanWest broadcasting entity.”
Chairman von Finckenstein asked why there didn`t appear to be an executive committee, just a loose reporting committee that would meet once a quarter, prior to the meeting of the five-person board overseeing the new entity. CanWest CEO Leonard Asper said that the reporting committee is meant for exchanges of information between GS and CWG and that any decisions would be taken by the board, of which CanWest will have control of under the deal with three of the five directors. The other two would be appointed by Goldman Sachs.
“Practically speaking, the reporting committee does not intend to meet between board meetings nor is it intended to function as an executive committee,” said Asper.
Von Finckenstein then added that the reporting committee should be more transparent because it could become a de facto executive committee that could influence company decisions too deeply. The chair was very direct and addressed the issue again after the morning break, telling the 17-member panel representing CanWest and GS that the reporting committee is not good enough. “We have a differing opinion on that,” he noted. “It’s very troubling to us.”
As for the veto rights to be held by GS, they do not cover anything that falls under the normal operation of the business, said Asper. So, for example, a big marketing push, or an expensive fall season programming buy, or high definition upgrades would not be covered by such veto power.
But, if CanWest wanted to buy a web auction site or a radio company, something outside the norm, it would be something that would require the approval of both GS board members and is subject to the veto. Or, if the company wanted to buy something for more than $10 million, it would require GS board members approval. There are also debt and other thresholds.
“From our perspective, we found these vetoes to be very de minimus,” said Asper. “The thresholds give us very, very wide latitude, strategically and operationally.”
When pressed on what, exactly, constitutes the difference between what`s falls under normally operational or not, CanWest`s general counsel Richard Leipsic added if something material happens, “you know it when it happens.”
To which chairman von Finckenstein added, stating that since the Commission deals in regulation and requires some certainty on such written definitions: “That`s of no comfort to me,” asking later to “put some more flesh on the bones of that material.”
