CanWest $110 million short of majority stake in Alliance acquisition

After a day and a half of debate over equity and control CanWest MediaWorks Inc. revealed to the CRTC it would have to invest an additional $110 million to retain more than 50% of the equity in a CanWest/Alliance Atlantis Communications Inc.-merged company. While that extra outlay would go a long way to appeasing those who object the acquisition on the grounds that it will result in US investment bank Goldman Sachs Capital Partners controlling 65% of the equity, CanWest doesn't seem willing to put up the extra money."We structured this transaction so we would not be betting the farm," said CanWest's president and CEO Leonard Asper. "If we did invest an additional $110 million we would be getting a lot closer to betting the farm." In its closing remarks, CanWest tried to address the questions from both the commissioners and preceding interveners. It offered several proposed changes to its shareholders agreement, including doubling the threshold amounts on transactions outside of the ‘ordinary course of business,' where Goldman Sachs would have veto power as the majority shareholder. CanWest also explained that its proposed reporting committee is only a window through which Goldman Sachs can examine the business, but it has no decision making power. But in the end, the best assurance Asper could give was that Canadian programming wouldn't be compromised as long as CanWest's channels continued to meet their conditions of licence. There were other issues to address as well.One such query was whether, from a programming standpoint, specialty channels and conventional channels could, or would, be managed separately? Alan Brooks, executive director of the Alberta Motion Picture Industries Association urged the commission to "establish safeguards to ensure distinct and separate programming strategies be maintained for these channels and that all independent producers have access in a fair and transparent process." However, CanWest countered that doing so would negate the benefits of the acquisition. "The most successful strategy is to group together the expertise you have in-house," said Barb Williams, CanWest's senior VP of programming. "We want to be able to organize the work towards the expertise. To force experts apart would be foolhardy." The Canadian Film and Television Production Association (CFTPA) offered conditional support for the transaction during its intervention, with one caveat being that CanWest establish a terms of trade agreement with the CFTPA on behalf of independent producers. CanWest's response was mixed. Although Williams began by reassuring the commissioners that the broadcaster was open to talking with the CFTPA, Asper raised the eyebrows of CFTPA executives in the audience when he said CanWest was philosophically opposed to a standard contract for all dealings with independent producers. So even though Williams added that CanWest would endeavour to come to a good negotiation with the CFTPA by December 2009, the broadcaster had already shown its hand. CanWest similarly set off a flurry of whispers in the crowd when it addressed the benefits period. The broadcaster's recommendation to pay out its proposed benefits package of $136.9 million over 10 years was met with unanimous opposition from interveners, including those who support its acquisition of Alliance. Most wanted the period reduced to the more-common seven years, and some even advocated for five. But during its final remarks the broadcaster avoided what seemed like a simple compromise and stuck to its proposal, arguing that an extended benefits period encourages the creative process and avoids a major shortfall in funding seven years from now when other benefits packages are set to end. The commission will determine the length of a benefits program in its decision, should it approve the transaction. If the transaction is denied, CanWest warned that ratings would drop on its networks, which would accelerate cost-saving initiatives. As well, both CanWest and Goldman Sachs say they would likely suffer a loss on the sale of the Alliance assets. CRTC chair Konrad von Finckenstein closed the hearing by saying that the commission does not want to see a Canadian broadcasting asset operating in limbo any longer than it has to, and the commission would therefore render its decision as quickly as possible.

CanWest $110 million short of majority stake in Alliance acquisition

News | 11/21/2007 5:05 pm EST

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