GATINEAU – CanWest Global’s uniquely structured deal to acquire the broadcasting assets of Alliance Atlantis was approved late Thursday by the CRTC.
CanWest is buying the 13 specialty channels owned by Alliance Atlantis (BBC Canada, BBC Kids, Discovery Health, Fine Living, Food Network Canada, HGTV, History Television, Independent Film Channel Canada, National Geographic Channel, Showcase, Showcase Action, Showcase Diva, and Slice [formerly Life]) for about $1.4 billion. The deal also includes the acquisition of partial ownership in The Score, One: Body, Mind and Spirit, Historia and Series+.
The acquisition is being financed through debt, $260 million from CanWest and $650 million from U.S. private equity firm Goldman Sachs.
The approval came with few caveats, the most notable being an $14 million boost for the tangible benefits package (a difference in how CanWest and the Commission value the deal) to $151.25 million that must be spent in seven years, not 10, as CanWest had requested, and an increase in the amount the combined company can spend on certain things before activating a veto in the deal held by GS.
In a statement, CanWest president and CEO Leonard Asper said he was rather satisfied with the announcement and that the additional conditions were nothing to worry about. “We will endeavor to file all necessary amendments and information as required as soon as possible in order to satisfy the conditions set out in the decision,” he said.
“We are extremely pleased with the Commission’s decision,” he added. “We took every precaution to ensure this transaction met our business needs, while conforming to Canadian regulations.
“CanWest is now strongly positioned to compete in both the conventional and specialty marketplace by leveraging the strength of mass audiences with the additional growing reach of niche audiences.
“I would also like to thank the CRTC for rendering this decision so expeditiously. It now allows us to all move forward and create a new, vibrant, Canadian broadcast company.”
However, the fact that so much of the equity is being put up by GS raised concerns – and continues to raise concerns – in certain quarters who believe it is the thin edge of the wedge leading to American control of the Canadian broadcast industry. And before the CRTC can approve any broadcasting purchase, it has to make sure the company will be owned and controlled by Canadians.
ACTRA, the actors union, pronounced itself “alarmed” by the decision. "Canadian rules set foreign ownership limits for a reason – our cultural sovereignty is too important. Our prime time television schedule is already dominated by U.S. shows, thanks to the CRTC. This decision is truly alarming. Now the CRTC has allowed a U.S. company to buy a Canadian broadcaster," said Stephen Waddell, ACTRA’s national executive director.
But it’s a more complex deal than just that. It calls for CanWest eventually rolling in its own broadcast assets into a new company in the 2011-2012 time frame, at which time GS will exit the investment.
Plus – says the CRTC decision, down at paragraph 42 – if you include Global Television and CanWest’s other broadcast assets in counting the value of the overall broadcasting operation, since it will operate as one big company, CanWest already has 50% ownership, for all intents and purposes.
“The Commission notes… that even prior to the Combination Transaction, CanWest will operate both the AA Companies and the Contributed Business as one business,” it reads. “Therefore, CanWest’s de facto contribution to this transaction is 35% of the equity in the AA Companies plus the value of the Contributed Business. The Commission asked for and received from CanWest a confidential third-party valuation of the Contributed Business. Taking CanWest’s equity share in the AA Companies and the Contributed Business together (using the confidential valuation referred to above), CanWest’s share of the equity in the venture will be more than 50%. Looking at matters in this light, the Commission finds no merit in the argument that GSCP’s equity position will give them control in fact.”
"We are satisfied that this transaction meets the requirements for Canadian control both in law and fact," added Konrad von Finckenstein, chairman of the CRTC, in his own statement. "In examining the application, we wanted to be certain that this transaction is consistent with the policies set out in the Broadcasting Act and beneficial to the Canadian broadcasting system as a whole."
This deal is a two-step transaction. First, CanWest, through a subsidiary called CanWest Investments, will acquire the Alliance assets. CanWest will hold 35% of the total equity investment and 66.67% of the voting shares of CanWest Investments, with Goldman Sachs Capital Partners holding the balance of both equity and voting shares.
Then, CanWest is contractually committed to merge its existing broadcasting properties into CanWest Investments by 2011, thereby easily increasing its investment to over 50%.
In the interim, CanWest will manage both the Alliance Atlantis assets and its existing broadcasting properties in tandem. Thus, taking into account the entire transaction, “CanWest’s share of the overall equity and voting shares does not cause concern to the Commission,” says the release announcing the decision.
The Commission also expressed concern over whether CanWest would have control in fact of CanWest Investments given the corporate governance arrangements. In response, CanWest made several changes to the proposed governance structure, notably to the quorum requirements, veto rights and liquidity rights. Programming decisions will remain under CanWest’s control.
“The Commission is satisfied that these changes ensure the broadcasting companies will remain under Canadian control at all times,” it said.
In its decision, the Commission upheld the well-established policy that tangible benefits stemming from a transaction must be fulfilled within seven years in approximately equal increments. CanWest will allocate $136.6 million to programming initiatives, including Canadian drama, documentary productions, and news and public affairs. Many of the programs flowing from these initiatives will be produced by independent production companies.
In addition, CanWest has committed $14.6 million toward social and industry initiatives, including mentorship and internship programs, and support for arts and diversity festivals.
Today’s decision follows a public process that included a public hearing, which began on November 19, 2007 and that Cartt.ca covered from gavel-to-gavel.
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