GATINEAU – In its final appearance back in front of the CRTC this afternoon, CanWest Global responded to requests and demands raised by the Commission panel and interveners over the past couple of days – and presented several alterations to its shareholders agreement covering the purchase of Alliance Atlantis with the help of Goldman Sachs.
As previously reported on several occasions by Cartt.ca, investment banker Goldman Sachs is providing the bulk of the equity financing ($650 million-plus) for this $1.4 billion acquisition while CanWest is kicking in some money ($260 million) and its own broadcasting assets. The deal also says that CanWest has to buy out Goldman Sachs by 2011, or take the company public.
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.
Just prior to the lunch break today, however, after the various interveners were finished, CRTC chairman Konrad von Finckenstein called CanWest back for some additional questions, and then gave company leaders a 90-minute lunch to come back with answers.
Those answers seemed to impress the panel, too.
For example, von Finckenstein wanted to know what CanWest thought of the proposals made by several of the cultural groups to keep the programming teams of Global Television and Alliance Atlantis separate and distinct.
In short, it’s a bad idea, said CanWest’s TV execs. “It’s critical to have a larger and more common point of view on programming strategy,” said Kathy Dore, president, television. CanWest – and Alliance Atlantis (and, for that matter, most other broadcast companies) – no longer define their senior programmers with individual channels and often do so instead across programming genres like drama or comedy or kids or documentary.
“We may decide at some point that’s not the best way to run our programming unit,” added Dore, “but we would certainly maintain that it’s a decision that should be left to the discretion of management.”
So, if that’s the case at other broadcasters, why have the interveners asked for separate broadcast teams, asked von Finckenstein. “My guess is there is a little bit of a fear of change,” added SVP programming Barbara Williams.
On the question of how much CanWest would have to invest in order to get their share of the equity to 50%, Asper said the company would have to come up with an extra $110 million, on top of the $260 million it is already committed to.
But that amount of money, cautioned Asper, would take CanWest dangerously close to violating its debt covenants with lenders. “And if (interveners) think we’re under pressure now, we would be under significant pressure,” adding so much more debt, added Asper. Plus, speculation on the potential for a further equity injection has significantly depressed CanWest’s share price over the past months.
“We structured this deal not to bet the farm,” added Asper.
Commissioners also wanted to know if CanWest had approached Canadian investors, since so many interveners are worried that an American is providing most of the equity and will exercise control.
Asper took commissioners through the whole process of the Alliance Atlantis auction (where other Canadian companies had a chance to bid) in December of 2006 and said yes, they did approach Canadian banks, but those institutions are limited to writing cheques for such things to amounts of about $200-$250 million, said Asper.
It also approached the large pension funds, but they were either already invested in other media companies (like the Caisse de depot and Quebecor) or could not hit the deadline to bid tat Alliance Atlantis had set. “Pension funds do not write cheques of this size in one week,” said Asper.
So CanWest needed to find a partner that was willing to lend the hundreds of millions and keep the CSI TV show franchise and Alliance Atlantis’ movie distribution division, too – while also agreeing to keep its hands CanWest’s other divisions like its Canadian newspapers and Australian operations. Plus, that lender had to accept CanWest’s value appraisal of Global Television and the other broadcasting assets.
That one willing partner left over was Goldman Sachs, said Asper.
As for the 10-year timeline to spend the benefits package? CanWest still wants to keep that. Williams quoted an intervener from earlier this morning who outlined how a single drama can take three years to get from concept to development and since CanWest added it wants to do pilots, rather than accept scripts and concepts, that will add more time.
“We thought (10 years) was better for the production community.”
When it came to the questions posed yesterday by the commission panel, Asper’s response this afternoon clearly addressed many, if not all of the concerns raised, altering the shareholders agreements in a number of spots to reflect concerns noted the day before by the panel.
For example, it has volunteered to make the reporting committee more formal, and processes more transparent.
Decisions undertaken by the combined company’s five-member board will not require approval of both GS-appointed directors, but of just a majority of the board and one GS director.
The Commission yesterday also inquired about providing a more exact definition of items that fall under “the ordinary course of business,” because parts of the GS/CWG shareholders agreement give GS a spending veto, such as if CanWest wants to make a purchase that may fall outside its current mandate.
CanWest and GS altered the language of the agreement overnight, making it more specific. “The revised language concerning the ordinary course of business would include, but not be limited to, program production, program acquisition, program sales, affiliation agreements with broadcast distribution undertakings, advertising contracts, capital expenditures related to the operations of the television assets, as well as any ancillary activities related to any of the television assets,” said Asper this afternoon.
This means that Goldman Sachs has no veto over any of these items, irrespective of the threshold amounts.”
Asper also said the threshold amounts of money that could be spent without triggering the veto provisions were all doubled, too.
And, it was put into writing in the shareholders agreement how the five-member programming committee would be composed (all CanWest employees, all nominated by CanWest, not GS).
CanWest also noted that its benefits package was structured on an older valuation of the Alliance Atlantis assets and the company feels it is now paying $4.4 million more than required and asked the CRTC take that into consideration when analyzing the requests from some interveners that the amount be increased further than the $136.9 million offered.
Just before adjourning the meeting, chairman von Finckenstein commended CanWest for its forthright responses and overnight (and overlunch) changes in some of its ideas and positions.
“You have moved along well and we will endeavour to render a decision as soon as possible,” he said.
How soon? Hard to say, but the decision to grant (most) of CTVglobemedia’s purchase of CHUM took 37 days and the decision on Rogers’ purchase of Citytv took just 27. Those examples, coupled with the commitment to speediness on decisions coming out of Gatineau these days, if we were gamblers, we’d bet on a final decision on this merger from the Commission in advance of the Christmas break.
