DENIED. We’re still surprised (and most anyone who tells you they feel otherwise is pretty much full of it).
I mean, many of us had suggested a full-on denial could happen – and the overall tone of the public hearing last month surely had some believing it was a possibility, but it was pretty difficult to find anyone who would actually say with any certainty before Thursday afternoon this deal would be nixed. The CRTC hasn’t really fully said “No” to a significant deal since Vidéotron tried to buy CFCF in the 1990s and Power Corporation wanted to buy Quebec broadcaster Télé-Metropole (now TVA) in 1986. And, despite those early denials, Quebecor now owns all those cable and broadcast assets.
The consensus surrounding the acquisition of Astral Media by Bell Canada, and I mean right up until 3:59:59 p.m. Thursday, was that it would receive conditional approval: That the Regulator would say “yes, but…” As in “yes, Bell, you can have Astral, but you must sell a few English TV channels to make us more comfortable with your market influence, and the benefits package needs an overhaul, and you’ll need some extra regs tacked on there for good measure.”
Bell leaders were and are, dumbfounded. In his memo to staff on Friday, Bell CEO George Cope called the decision “mistaken”, “an injustice”, “out of the blue and so wrong”, “shocking and ill-thought” and offered up CRTC chairman Jean-Pierre Blais’s e-mail address for employees to give him a piece of their mind. The company has now taken the unprecedented step in asking federal cabinet to issue a policy direction to the CRTC on this issue.
The Commission has just about always decided in favour of the companies involved in M&A activity – and often surrounds the approval with conditions or better benefits before sales can be finalized. Back in 2007, the major condition the CRTC demanded of CTVglobemedia when purchasing CHUM Ltd. was that it sell the Citytv network instead of the former A-Channels, which it had initially promised to divest. That sort of horse trading has been part of the usual regulatory dance for a while. No more, it seems.
The feel of the hearing was very different than others we’ve covered (something we’ve been doing since 1997). It always did seem like this deal was in trouble with the Commission, but we couldn’t bring ourselves to truly believe it. I guess we should have trusted our eyes and ears but we instead chose to think the commissioners who aggressively questioned Bell were playing the part of Devil’s Advocate and not really as opposed to Bell/Astral as they seemed. While we noted recently that the final question CRTC chairman Jean-Pierre Blais asked Bell executives during the public hearing should have scared the Bell executives, we still didn’t believe a full denial was going to happen.
Turns out we were right about Bell needing to be afraid of what that final query meant, but before Thursday afternoon everybody – and I mean EVERYBODY we talked to assumed approval (except one fellow, and you know who you are). This is a vertically and horizontally integrated industry and Bell buying Astral was assumed to be just another step in that march. Almost no one dared believe that the CRTC would essentially say: “you know what? This deal makes Bell too big, we don’t like the way you’ve been playing in the industry sandbox with everyone else, we think it’s not in the best interest of Canadians, so forget it. No.”
But the Regulator did just that – and in such a way we wonder just what company can now buy Astral?
* Corus Entertainment and Cogeco Inc. had put a partnership together earlier this year to try and buy the company but were outbid by Bell, sources told us. Some say Cogeco is the now-obvious Astral suitor, but the has already spent $1.3 billion on U.S. cable and internet firm Atlantic Broadband this year, making another big acquisition difficult. “We question whether Cogeco Cable has the balance sheet or operational capacity to integrate Atlantic Broadband and Astral at the same time,” said Canaccord Genuity analyst Dvai Ghose in a research note.
* How about Corus alone? No way. Since Shaw Communications and Corus are already considered a single entity for regulatory purposes as both companies are Shaw-family-controlled, it is impossible to envision the Commission allowing Corus or Shaw to buy Astral, given the reasons the Regulator outlined in saying no to Bell.
* Rogers? While it would raise similar questions as Bell’s attempted purchase, and we heard from several sources it was prepared to go as high as $47/share for Astral earlier this year, Rogers’ media division is much smaller than Bell Media, so it remains a possibility. Rogers Media chief Keith Pelley told reporters during a conference call today that his company would be interested in “selected” Astral assets, should the company come back on the market.
* Quebecor? It’s already the dominant media company in Quebec, but if it wants to be a bigger player in English Canada, it could be part of a consortium which buys and splits up Astral. However, a recent $1.5 billion corporate share reorganization has raised the company’s debt leverage quite a bit so it may not be able to participate at this time. Plus, it will need some cash on hand when the 750 MHz wireless spectrum auction happens in 2013.
* Telus? Acceptable from a Regulatory point of view since it owns no content, but the company has long been adamant that it does not want to go the route that Bell, Rogers and Shaw have chosen. A change of course would be very surprising.
* How about Michael MacMillan’s growing Blue Ant Media (who is backed by Torstar as a 25% investor)? Hmmm… Hard to see any regulatory concerns there. But it’s equally hard to see a small player like Blue Ant raising $3 billion, but we could see it as a participant if Astral is broken up and sold.
* Astral could simply continue as a going concern. It has always been a well-run, well-respected, profitable company and if CEO Ian Greenberg really does want to retire, there are many suitable candidates who could come in as a new leader. Just like a Rogers family member doesn’t have to run RCI, a Greenberg doesn’t have to run Astral.
* Astral could be broken up and sold to multiple suitors. In fact, that’s the prevailing opinion now (well, the past few days, anyway). Its 80-plus radio stations would have many suitors and some of the companies we’ve noted above should be able to get a purchase of certain parts of Astral’s TV portfolio approved by the Commission at a price far lower than buying the whole thing would cost.
* One more option would be for Bell to redesign the deal and re-approach the Commission with a third or fourth party involved as co-owners, investors or in a scenario where Astral is broken up.
We find it very difficult to believe cabinet will intervene in Bell’s favour. There’s nothing for the federal government to gain, politically, by getting involved and no other companies are coming to Bell’s defence to add weight to its complaint. Plus, chairman Blais was the cabinet-selected man for the top job at the CRTC just five months ago. Presumably, cabinet and the Prime Minister’s Office knew his opinions on many issues, so it’s a real stretch to think cabinet would knee-cap their own recently chosen CRTC leader upon his first big decision. Finance Minister Jim Flaherty and Industry Minister Christian Paradis told the CBC as much over the weekend.
Bell’s other, final, option is an appeal to the Federal Court of Canada, where it would have to prove the CRTC erred in a matter of law. But that could be a time-consuming process and the offer to purchase Astral has an expiry date of January 13th.
Whatever happens from now on, however, make no mistake: This decision (when viewed along side of moves like this, this and this, and seen through the prism of the Commission's three-year-plan) is being viewed throughout the industry and across the country as a sea change, a new CRTC where there won’t be horse-trading on the stand as in the past; one where companies will have to present their best offers, in writing, well before public hearings. It's a CRTC with a keen focus on the Canadian consumer, the Canadian citizen, like none other before it.
