AFTER CHUM DEAL, SUITORS COURT STANDARD Grant Robertson and Sinclair Stewart - Globe and Mail
Suitors have begun approaching Standard Broadcasting Corp. Ltd. to gauge the company's interest in a possible deal, a sign the Canadian media industry could be poised for an accelerated round of consolidation following Bell Globemedia's $1.4-billion acquisition of CHUM Ltd. earlier this month.
“We were waiting for the first large deal. Then everybody could start to figure out what dance partners are next and figure out their plan,” said Bob Bek, an analyst with CIBC World Markets. “And that's what I think will take place over the next six months.”
One of the most sought-after partners, especially now that CHUM's dance card is filled, is Standard. The Toronto-based broadcasting empire, controlled by billionaire entrepreneur Allan Slaight, owns 51 radio stations across Canada, including some of the highest-rated commercial FM stations in several major cities.
“We've had some calls. There's been lots of phone calls,” acknowledged Gary Slaight, Mr. Slaight's son and Standard's chief executive officer. “But right now we're busy running our business. We're just finishing off our budgeting and we're going to revisit all our options in a couple of weeks.”
Gary Slaight, President and CEO, Standard Radio Inc. addresses the media in August, 2005. (Tibor Kelly/Globe and Mail)
The CHUM deal, however, which placed a hefty premium on radio assets, has likely pushed up Standard's estimated $1-billion market value. Yet the Slaight family has always been reluctant to give up control through an outright sale, one of the main reasons they favoured the IPO course.
“Certainly, the valuation implied from CHUM would suggest that Standard, if they did a sale, obviously could get more than they could on a trust IPO,” Mr. Bek said. “I think they know that.”
That leaves Standard in an unusual predicament. Some bankers believe the higher valuations spawned by the CHUM deal could actually hamper Standard's ability to pursue an income trust structure.
The reason? If the company's value goes up, then its yield — the amount of cash it pays out to unitholders, as a percentage of the size of the business — goes down. Standard had been contemplating a trust with a yield of around 8 per cent, but that figure could drop to around 7 per cent following the CHUM deal, predicted some bankers and analysts.
They argue that it could be difficult for Standard to muster the necessary appetite for a trust IPO at this low level, given that only a handful of companies have ever gone public with a yield below 8 per cent. In the cases where they did, such as Aeroplan, investors were willing to buy the units because they saw immediate prospects for growth — something that's less visible in the consolidated landscape of conventional media.
“They have to be very compelling stories,” Dirk Lever, a trust analyst at RBC Dominion Securities Inc., said of the few trusts that came to market with low yields. “They're almost household names, or utility-like.”
Another issue, said one investment banker who works in the trust market, is that large fund-of-funds, which make up a big portion of the trust market's shareholder base, need an average yield of between 9 and 10 per cent on their basket of trusts to deliver returns to their retail investors.
“My opinion is it would be pretty limited,” he said of the appetite for a Standard trust IPO with a yield near 7 per cent. “I don't think the value works as an income trust.”
Gary Slaight disagrees.
“We think it would not hurt whatever the IPO was going to do at all. We think it would help it,” he insisted of the CHUM deal. “And that's the opinion of the people we're working with as well. But it's not going to have one iota of impact on what we could end up doing, which could be nothing.”
Mr. Slaight would not indicate which companies have called after the CHUM deal, but said the conversations were not negotiations.
Several potential buyers could be interested in Standard, with Montreal-based Astral Media Inc. considered by many analysts to be at the top of the list. Astral's radio assets would fit together with Standard's stations with minimal overlap.
Aside from a few stations in Montreal, the two companies would potentially complement each other without raising the hackles of regulators. The CHUM deal, on the other hand, must pass several regulatory hurdles and will face scrutiny from the Competition Bureau over the combined television assets of Bell Globemedia, which also owns the CTV network and The Globe and Mail.
Astral was the other bidder for CHUM. While the company has indicated it won't come back with a counteroffer for CHUM, it has said it wants to buy other media assets in radio, television or billboards if the right opportunities arise. Astral wouldn't comment on Standard.
Standard's assets include well-known stations in several cities, such as Mix 99.9 and CFRB Newstalk in Toronto, The Bear in Edmonton and Ottawa, CJAY 92 in Calgary and Mix 96 in Montreal. |