BGM GRABS CHUM FOR $1.4-BILLION Grant Robertson and Jacquie Mcnish - Globe and Mail
When Bell Globemedia gave itself a billion-dollar makeover last winter, the message inside the boardroom was that the company wanted to get bigger — and it was prepared to spend money to get there.
Few expected the company would wait only a matter of months to open the vault on a deal that would transform Canada's media landscape.
Wednesday, Bell Globemedia (BGM) offered $1.4-billion to buy CHUM Ltd., a broadcasting pioneer that has struggled recently as a national player. The deal would give Toronto-based BGM a second television network on top of CTV, and add a stable of radio stations across the country. The offer totals $1.4-billion, not including debt, and values CHUM at $1.7-billion.
BGM is purchasing CHUM's 33 radio stations, 12 television outlets under the CITY-TV banner and A Channel brands, and 21 specialty channels, including MuchMusic and Bravo. It is still awaiting regulatory approval for a deal last December that added Ontario Teachers Pension Plan and newspaper publisher Torstar Inc. as investors.
“We couldn't be sidelined, you have to take the opportunity when it's there,” said Ivan Fecan, BGM's chief executive officer. “One of the things that we said is that it is our intention to grow, that this is a growth strategy.”
The company said it will sell five A Channel stations picked up in the deal, in part to appease federal broadcast regulators who are likely to take issue with the acquisitions, since it gives BGM multiple TV assets in several cities.
The deal comes eight months after the death of CHUM founder Allan Waters, a legendary broadcaster who started the company with a single radio station in 1954.
While the purchase comes sooner than BGM executives had expected to start making deals of such magnitude, the decision by the Waters family to sell its controlling stake meant the company couldn't wait.
The Waters family began privately contacting buyers in May.
The move from the family prompted a frenzied two-week bidding race between BGM and rival Astral Media Inc. in June, according to sources.
Mr. Fecan described the auction as a “wicked” process, given the fast pace that saw bids going back and forth between two bidders. Montreal-based Astral Media has coveted the CHUM assets for years and is flush with cash, which likely drove up the auction price.
The deal is expected to draw fire from critics of media consolidation, particularly after a Senate committee report recently called for tighter restrictions on such acquisitions in Canada. However, Geoffrey Beattie, president of BGM investor Woodbridge Co. Ltd., said the move is designed to create a stronger company in the face of a shifting industry.
“We hear about the hollowing out of Canada, but here is a company that is trying to grow in Canada, trying to compete,” Mr. Beattie said. “We're trying to build that company.”
The speed of the sale by the Waters family even caught CHUM off guard. According to people familiar with the discussions, CHUM's executives and board were not advised that the Waters family had agreed to sell their stake to BGM until the end of June. CHUM carried out the process under the code name Project York, a throwback to its roots when Allan Waters' private company York Enterprises Ltd. acquired Toronto radio station CHUM AM.
News of a deal appears to have leaked out, with jumps in the stock Monday prompting the Toronto Stock Exchange to halt trading early Wednesday. CHUM later hurried out its third-quarter earnings a day ahead of schedule. The company was also in the midst of restructuring its news operations, which include deep layoffs, that were also announced Wednesday, including cuts totalling 281 full and part-time jobs across Canada.
When the deal was announced late in the day, CHUM said it was pushing forward with the restructuring, which is designed to bring costs under control at its slumping television operations.
“It's been a long day,” CHUM chief executive Jay Switzer. “A long, long day.”
This deal will hand more than $440-million over to the Waters family. Eldest son Jim Waters did not comment on the deal, however the family is said to have changed its mind in recent months after vowing last fall that CHUM wasn't up for sale.
Several factors are said to have influenced the decision for the Waters family, including a desire by daughter Sheryl Bourne to sell her stake in the business, while mounting pressure on the TV operations were causing growing concerns about the potential for a turnaround. CHUM reported a third-quarter profit of $22.5-million Wednesday, down slightly from last year, however the company has been raising concerns for several quarters that profitability was sliding at the TV operations.
When asked by analysts what prompted the sale by the Waters family, Mr. Switzer said he didn't think it was appropriate to comment on “what is clearly a personal matter involving the estate and the family.”
BGM plans to sell off A Channel stations in Ottawa, Barrie-Toronto, London, Victoria and the Alberta-based Access channel. It will keep CITY-TV assets in Toronto, Winnipeg, Calgary, Edmonton and Vancouver. BGM is hoping that will be enough to appease the Canadian Radio-television and Telecommunications Commission, which must approve the deal and is believed to be a few weeks away from approving the BGM restructuring.
Mr. Fecan said the company will keep its CITY-TV operations separate from the CTV network, including operating independent newsrooms. CITY-TV gives the company a network with a younger audience to complement CTV, he said.
CRTC rules state that companies can only own one over-the-air TV station in any market, however concessions have been made in the past to allow companies, including CanWest and CHUM, to own two. BGM would likely seek the same permission from the regulator.
Mr. Fecan said the company also gains a foothold in radio in the deal, which BGM was seeking. The radio industry faces considerable competition from new technology such as iPods and the Internet, but has been profitable for companies like CHUM and Astral.
The media company is owned by BCE Inc., which holds a 68.5-per-cent stake, and Woodbridge Co. Ltd., the holding company controlled by the Thomson family, which holds 31.5 per cent. The proposed $1.3-billion restructuring deal in December will see Woodbridge increase its stake in BGM to 40 per cent, with Ontario Teachers, Torstar and BCE taking a 20-per-cent stake, pending regulatory approvals. The CHUM deal includes funding from the new investors. |