CANWEST EXPECTED TO STEP UP PURSUIT OF MEDIA HOLDINGS More Australian, domestic specialty TV assets targeted after Alliance acquisition Andrew Willis and Grant Robertson – Globe and Mail CanWest Global Communications Corp. plans to use its acquisition of Alliance Atlantis Communications Inc. as a springboard for continued wheeling and dealing in Canadian and foreign media, a push that has the full support of its deep-pocketed U.S. backer.
In the wake of last week's $2.3-billion bid for Alliance, which will see CanWest contribute just $132-million, the Winnipeg-based company is expected to vie for a larger slice of the Australian media, and be an even bigger player in domestic specialty TV and programming.
CanWest's push has the full support of Goldman Sachs Group Inc., the New York-based dealer that is financing the Alliance purchase. One source close to the dealer said: “This is not a typical private equity deal. Goldman is backing a client with its capital, and can be counted on to continue backing CanWest.”
CanWest executives were out selling the Alliance takeover to institutional investors yesterday in Toronto, and plan a similar road show tomorrow in New York. The potential for expansion Down Under is an element of the presentation.
CanWest is now expected to avoid selling its Network 10 holding in Australia, which analysts previously forecast would be auctioned off for $1.5-billion.
“With the Alliance Atlantis deal not necessitating a sale of the South Pacific assets, we believe that CanWest will opt for a merger into a larger media company,” said a report yesterday by analyst Ben Mogil at Westwind Partners.
He predicted Goldman may step forward as CanWest's partner in Australia.
“Should the world unfold the way CanWest envisions, the company will not only own a majority of the [Canadian specialty channels] in 2011, but also maintain a larger stake in the South Pacific assets,” Mr. Mogil said.
Goldman would be willing to put more money into its planned Canadian venture, say sources close to the investment bank. The dealer expected to raise a $15-billion (U.S.) fund this year, backed in part by its own employees.
“To use a baseball analogy, Goldman's expectation is to hit a safe double here. When you are investing half a billion dollars at a time, you don't have to constantly hit home runs,” said one financier close to Goldman. CanWest settled on Goldman as a partner last month after a beauty contest that featured two other U.S. private equity funds, Cerberus Capital Management LP and Providence Equity Partners Inc.
Goldman is now going out of its way to explain that Alliance will be CanWest's show to run. “There's no hammer here for Goldman,” said one source close to the U.S. dealer. “Goldman doesn't have any role in programming, they can't hire or fire, and they can't do anything with their stake without CanWest's blessing,” he said.
However, CanWest's road show yesterday in the Toronto offices of CanWest adviser Genuity Capital Markets, did not explain just how CanWest and Goldman will eventually split the spoils.
“They were vague on details of just how this deal will be unwound,” one analyst said. If approved, the Alliance purchase will see CanWest take control of Alliance's 13 specialty television channels, but hold just 17 per cent of the equity.
In 2011, CanWest will have the opportunity to buy the channels, and analysts estimate the purchase will pay out at 10 to 11 times earnings before interest, taxes, depreciation and amortization (EBITDA). In some scenarios, Goldman stands to receive $1.2-billion to $1.5-billion for its stake. Goldman is also taking Alliance's 50-per-cent stake in the CSI crime drama series.
CanWest's preference is to hold off on further domestic acquisitions until the Canadian Radio-television and Telecommunications Commission signs off. But once the acquisition closes, priorities will include cleaning up Alliance's minority stakes in five specialty channels. This includes half ownership of two French-language channels, minority stakes in a channel called One — the Body, Mind and Spirit channel — and in Scream and The Score.
Long disdainful of specialty TV, CanWest is now expected to move on other domestic channels. This comes as industry insiders expect the Alliance sale to increase pressure to bulk up or sell out at Canada's remaining media companies, including Astral Media Inc. C and Corus Entertainment Inc. C
“It really seems to be to the point where it's consolidating at a very rapid rate and there's no signs of it slowing down,” media executive Drew Craig said of the deals that have reshaped the sector in the past six months. He sold the family's television business, Craig Broadcasting Ltd., to CHUM Ltd. in 2004, and CHUM in turn was snapped up by CTVglobemedia this summer.
As media consumers increasingly opt for Internet downloads and video-on-demand, Mr. Craig said, the survival of Canadian networks will depend on how much content they can control, rather than how many channels they acquire. “Designing your own strategy, instead of buying your strategy, is ultimately the way you want to go,” he said. “The more original content you can put on the screen the better off you're going to be.”
Documents filed last week by CanWest state that Goldman will not have any control over what is broadcast on the channels, which should ease CRTC concerns.
However, observers said the CRTC will look at how much pressure the agreement with Goldman places on CanWest to boost the performance of its TV operations. At the CRTC hearings on the Alliance purchase, Mr. Asper and his backers from Goldman are expected to detail an increased commitment to funding domestic programming.
“My concern would be that at some point there [will be] very, very strong pressure on CanWest to increase the performance of those properties, said Marc Raboy, the Beaverbrook Chair in Ethics, Media and Communications at McGill University.
“As we know, the best and surest way to increase the strictly financial performance of Canadian broadcasting properties is to drastically increase the proportion of cheap American programming and get out of the business of producing Canadian programming,” Mr. Raboy said. |