News from The Globe and Mail

CanWest ruling seen as setting precedent

GRANT ROBERTSON

00:00 EST Friday, December 21, 2007

CanWest Global Communications Corp. has been cleared to acquire rival broadcaster Alliance Atlantis Communications Corp. in a federal ruling that provides a new blueprint for allowing foreign investors into the broadcasting sector.

The Canadian Radio-television and Telecommunications Commission approved CanWest's proposed takeover of Alliance's television assets yesterday, with only minor alterations to the deal.

Some analysts had speculated that CanWest would be forced to pump an extra $110-million into the transaction to bring its equity stake to above 50 per cent, since most of the deal is being financed by U.S. investment bank Goldman Sachs Group Inc.

The assets are being sold for roughly $1.5-billion, but CanWest is putting up just $262-million of its own money while the rest is being financed by Goldman Sachs and through debt.

But when the decision was rendered after markets closed yesterday it contained none of the financial or structural changes that CanWest chief executive officer Leonard Asper warned would potentially imperil the company if they were imposed.

Indeed, Bay Street analysts viewing the decision said it potentially sets a precedent for future broadcasting deals involving significant levels of foreign investment and board influence.

In a statement, Mr. Asper said he was happy with the decision. "We are extremely pleased with the commission's decision," he said.

"We took every precaution to ensure this transaction met our business needs while confirming to Canadian regulations," Mr. Asper said.

The CRTC said yesterday that it is comfortable with measures CanWest has put in place to ensure that Goldman Sachs will not control the Canadian broadcasting operations.

"We are satisfied that this transaction meets the requirements for Canadian control both in law and fact," CRTC chairman Konrad von Finckenstein said in a statement.

"In examining the application, we wanted to be certain that this transaction is consistent with the policies set out in the Broadcasting Act."

The CRTC is requiring some small changes to the shareholder agreement. For any board decisions, there must be a majority of CanWest representatives present to have a quorum, as opposed to merely a majority of board members. CanWest will have to invest $143-million in tangible benefits as part of the deal. That number is $7-million higher than the company had proposed. One analyst said the conditions imposed on CanWest "don't look too onerous."

As a form of collateral, CanWest is combining its Global network with the Alliance channels and, in 2011, the company and Goldman will allocate shares in the business based on the performance of each operation.

"CanWest has confirmed that it will hold 35 per cent of the total equity investment and 66.6 per cent of the voting shares of CanWest Investments, with Goldman Sachs Capital Partners holding the balance of both equity and voting shares," the CRTC said.

"Secondly, CanWest is contractually committed to merge its existing broadcasting properties into CanWest Investments by 2011, thereby easily increasing its investment to over 50 per cent. "

The CRTC ruling raised immediate concerns in Ottawa that other broadcasters could now seek out foreign investors to take large stakes in future transactions. Under federal regulations, foreign investors can't own more than one-third of the votes in a holding company that controls a Canadian broadcaster.

"This deal will have implications for years to come. It's a complete turnaround on 60 years of Canadian cultural policy," said Charlie Angus, the heritage critic for the NDP. "They have opened the door for [U.S] bankers."

However, legal experts have said CanWest was successful in making sure the deal adhered to federal regulations.

"The broadcasting foreign ownership rules do not expressly prohibit a foreign company from bankrolling a takeover," Stephen Zolf, a lawyer with Heenan Blaikie, said recently.

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