Scant benefits package may delay CRTC approval of Quebecor-Vidéotron merger

CRTC commissioners presiding over a hearing into Quebecor’s merger with Vidéotron ltée and TVA Group Inc grilled company executives in Montreal this week on a proposed benefits package that appears to fall well short of the regulator’s expectations. The commission’s vice chair of broadcasting, Andrée Wylie, went so far as to suggest that approval of the merger could be dependent upon the publishing giant antying up more in benefits. What Quebecor would acquire Vidéotron 1.415 M cable subscribers on 75 systems 120,000 high-speed Internet customers 21.71% of voting shares in CPAC SuperClub Vidéotron’s 165 video rental stores across Quebec TVA Conventional television6 stations in the TVA network 45% of Télé Inter-Rives ltée, which owns one of four TVA-affiliated stations; in process of acquiring a second TVA-affiliate. 49% of the English-language station CKMI-TV (Global) Existing specialty channels LCN Affaires 20% of Canal Indigo 10% of Canal Evasion Licensed but not launched (Category 1) 60.2% of Télé Ha! Ha! 51% of MenTV 50.1% of LCN 45.05% of 13th Street 45.05% of 13e Rue 20% of Travel Channel Licensed but not launched (Category 2) 90.1% of Digipix 66.67% of Game One (English and French) 30% of Front Row 30% of Première Loge Other 70% of TVA International Inc 50% of InfiniT Inc, which took over Netgraphe Inc Internet portal Publications TVA Inc TVA subsidiary JPL Production Inc TVA subsidiary TVA Direct Source: Compiled from Application for Approval of Acquisition of Vidéotron ltée and TVA Group Inc by Quebecor Media Inc, Quebecor Media Inc, January 2001.At the hearing, which kicked off Monday, Quebecor executives tried to follow the lead of BCE Inc in its successful bid to buy CTV Inc by touting the less tangible benefits associated with convergence, such as cross-platform promotion. The comparison didn’t always work in Quebecor’s favour, however, considering that BCE offered up $230 million in benefits over seven years for its $2.3-billion takeover of CTV. In comparison, Quebecor is proposing to spend $30 million over seven years in benefits as part of its $4.9-billion merger with Vidéotron and TVA. The rule of thumb is that the benefits package is equivalent to 10 per cent of the value of the regulated broadcasting assets in such a transaction. The broadcast assets were valued at $600 million or more, according to an analysis by Ernst & Young, which would normally trigger about $60 million in benefits. Under heavy questioning by commissioners, Quebecor Inc senior executive VP and COO Monique Leroux insisted that its benefits package could not be compared to that of BCE. She noted that BCE’s primary reason for acquiring CTV was the broadcasting content. For Quebecor, the main thing it wants from Vidéotron is its cable operations, she said. She added that BCE was acquiring 100 per cent of CTV, while Quebecor would retain only a 36.1 per cent equity in TVA even though it would maintain voting control of the French-language broadcaster. Leroux insisted that Quebecor had followed the proper steps in assessing the market value of the regulated assets of TVA – the figure upon which benefits packages are generally based. In a study commissioned by Quebecor, Ernst & Young pegged the fair market value of TVA’s regulated assets at between $600 million and $660 million in September 2000. Quebecor’s $30-million benefits package represents 13 per cent of the equity it has in TVA’s regulated assets, which is worth between $217 million and $239 million based on Ernst & Young’s analysis. Thus Quebecor argues, its proposed $30 million represents 13 per cent of the value it has in TVA’s regulated assets, which is above the 10 per cent standard set by the CRTC. The amount of the proposed benefits package pales in comparison to the $241 million that Quebecor gave Rogers Communications Inc to abandon a deal the cableco had to purchase Vidéotron. Wylie asked what the CRTC should do if it disagrees with Quebecor’s calculation. Should the CRTC make its approval of Quebecor’s acquisition conditional on another higher benefits package? What, in your opinion, are the procedural avenues open to the CRTC? she asked. Quebecor president and CEO Pierre Karl Péladeau dodged the question, saying as it was only his first appearance before the CRTC, he preferred to consult with his legal counsel before answering. The CRTC also commissioned University of Laval professor Jean-Marc Suret to value the transaction, and has asked for public comment on his assessment. Quebecor has pledged $27 million for new French-language shows and for the creation of an investigative reports and special features unit, and $3 million for training, research and support for the Canadian communications industry. Flexibility sought Quebecor officials told the CRTC that there would be much more flexibility in administering their proposed benefits package than the BCE plan. Quebecor promises independenceQuebecor has offered to strike a watchdog committee to deal with any complaints associated with the editorial independence and integrity at its TV and newspaper operations. During its hearing before the CRTC this week, company executives also committed to produce a code of ethics and conduct for TVA. Many of Quebec’s news voices will now be controlled by Quebecor, if the commission approves its purchase of Vidéotron and TVA. But Quebecor officials stressed that while administration, promotion and technology will be consolidated, news collection will not. For example, they stressed that journalists wouldn’t be asked to cover the same event for Quebecor’s newspapers, Internet sites and TVA.TVA Network senior VP of broadcasting and general manager Raynald Brière said Quebecor didn’t breakdown the percentage of the $20.5 million it has pledged for priority programming by genre. All it has indicated is that it will focus on variety shows, drama programs and youth programs. Instead, he said Quebecor prefers to allocate the funding based on the "real needs" of TVA’s programming as determined at the time of disbursement. The $20.5 million would be spent over the seven-year licence period, but Quebecor officials suggested they would like flexibility in varying the amount disbursed annually, depending on the projects proposed, rather than being committed to spreading it out evenly each year. The $27 million also includes $3 million for news, $1.5 million for program concept and script development, $1.5 million for interactive content, and half a million for encoding programming for the hearing impaired.

Scant benefits package may delay CRTC approval of Quebecor-Vidéotron merger

News | 03/29/2001 5:00 am EST

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