Craig Wireless, UBS in battle for control of Look, which sees Internet business on rise

A lawsuit filed by Craig Wireless International Inc. could throw a wrench in restructuring plans at wireless cable and Internet operator Look Communications Inc. UBS Wireless Services Inc., a wholly owned subsidiary of Unique Broadband Systems Inc., appears to be eyeing Look, particularly for its growing Internet assets, while Craig hopes to establish a more national footprint for its MDS system in western Canada. Look operates in parts of Ontario and Quebec. Look has 40 days from Craig Wireless’ filing of its statement of claim before the Manitoba Court of Queen’s Bench that asks the court to disallow a private placement by Look in January to UBS until it is approved by the company’s disinterested shareholders, and to direct Look to get the approval of the TSX Venture Exchange with respect to the private placement. Look "believes that the action is without merit and intends to vigorously contest the claim," and states that it obtained all necessary regulatory approvals for the private placement. The private placement gave UBS about 29.9% of Look’s outstanding shares. UBS also has an option to acquire 21.16% of Look’s outstanding shares from Look shareholder Telesystem, which would result in it owning 51% of Look, subject to CRTC approval. "The purpose of this transaction (acquisition of the shares owned by Telesystem) is to enable UBS to assume voting control of Look," UBS stated in a May 29 news release. A June 6 media release issued by the company even refers to Look as a UBS subsidiary - a mistake according to UBS spokesperson Peter Block, since the transaction hasn’t been completed. In its statement of claim, Craig Wireless also declares its desire for voting control of Look. "Craig says that it acquired shares in Look…with the intent of obtaining voting control of Look. Craig further says that the directors of Look knew, or could reasonably have been expected to know, that Craig’s purchase of Look shares was part of its strategy to obtain voting control of Look," reads the July 28 statement of claim. Craig already held about 5.36% of Look when it acquired those of Teleglobe to bring its stake to 29.9%. Craig could increase that stake to 32.47% with CRTC approval to acquire the remaining 2.57% of Look shares held by Teleglobe (CCR, Jan. 30/03). Craig Wireless president Boyd Craig tells Canadian Communications Reports, "We’re a pretty major player in the MDS spectrum in the west and we believe it only makes sense for us to expand to eastern Canada." He adds, "The spectrum that we’re in and the technology is fast evolving and the spectrum has been earmarked in the United States and designated for mobile communications. So I see in the future that we’re going to be offering such services as mobile broadband access and once you get into that business I think it makes sense to have a national footprint." Craig’s most recent comments to CCR and points made in the statement of claim contrast with statements he made just last month. He told CCR then that Craig Wireless’ acquisition of Look shares was simply for investment purposes (CCR, July 17/03). Look had mixed results in its fiscal 2003 second quarter ended June 30, with its digital TV subscriber base continuing to slide but with customers growing in the key business solutions and residential high-speed Internet market segments. According to financials released August 11, Look’s TV subscriber base declined for the tenth consecutive quarter to 42,700 in the second quarter from 45,200 the previous quarter. Look’s TV customer base is now less than half of its peak of 91,800 reached at the end of 2000. Craig proclaims not to be worried about Look’s struggling TV division. "As the technology evolves, there is going to be less and less distinction between the Internet and streaming video. So the two become one and the same," he says. Besides, he adds, "We believe the company’s not being properly managed." Look chair and acting president and CEO Michael Cytrynbaum doesn’t deny that it might make sense for Look to concentrate on the Internet side of the business rather than TV when queried by CCR. "We are examining the various things we are going to do and that’s being worked on right now. It would be inappropriate for me to anticipate the conclusions of that." He further hints at a potentially major restructuring of Look when asked how important the residential and high-speed Internet sections are to the company. "You can only tell that in the future and that will be significantly influenced by how we go forward as to what is important to us," he says. "We haven’t decided what we are going to do on a going forward basis. It’s something that we are actively working on and over the next three to five or six months, I believe we will have an approach we will all be happy with." Whatever those plans might be, Craig Wireless is hoping to have them blocked. "We’re going to continue to pursue our legal challenge. We feel that we have a very good argument and a strong case. So that’s the route we’re going to be following," Craig says. In its court action, Craig Wireless also asks for an injunction preventing Look from taking any action flowing from resolutions adopted at its May 14 annual general meeting. At that meeting, Craig was prevented from voting on a technicality. Had Craig’s vote been counted then a resolution, needing a two-thirds majority, to approve a separate class of non-voting shares would not have passed. Cytrynbaum says that Boyd Craig’s vote wasn’t counted because he didn’t have a resolution from his board of directors authorizing him to vote by proxy on the company’s behalf. "Craig Wireless is the owner of the shares. So Craig Wireless has to give the people, the registrar, an extract of a resolution (from the company’s board) that certifies that the directors…(have appointed) the designated individual as the proxy and that has to correspond to the person that’s named on the proxy. So essentially, you need two pieces of paper. He only brought one," Cytrynbaum notes. "The Canada Corporations Act says and mandates that when a company is going to a proxy, and it always has to because a company itself can’t vote - it has to have someone on its behalf vote, when a company gives a proxy that proxy must be supported by a (resolution) from the company issuing the proxy." Craig Wireless states that disallowance of its vote led to a "result that was oppressive, unfairly prejudicial and unfairly disregarded the interests of Craig…" Cytrynbaum explains that the new class of shares with no voting rights was established in case the company decided to go to the market to raise funds and Americans were interested. There are restrictions to the amount of voting control that foreign companies can assume in Canadian companies, but not in equity. He notes that Look isn’t planning to sell these non-voting shares soon, but "when you want to go to the market you want to do it quickly and you don’t want to have to…call a shareholders’ meeting to do it." Look did issue a rights offering to existing shareholders on March 26 to raise gross proceeds of $20 million to $24 million. But in its court action, Craig Wireless contends "that the said rights offering was without any valid, real or substantial commercial purpose, rather it was announced as a strategy to dilute the Look shares held by Craig." But Cytrynbaum counters, "I don’t understand the logic (of Craig). The only way he gets diluted is if he doesn’t want to invest in the company and then that’s a choice he makes." Cytrynbaum refers to the tiff with Craig as a "distraction," and says there has been no attempt at a hostile takeover. "If he wants to, go and make a bid (for Look). He hasn’t made a bid for the company," he points out. "If he makes an offer it is up to the shareholders to decide."

Craig Wireless, UBS in battle for control of Look, which sees Internet business on rise

Broadcast | August 22, 2003

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