CanWest OK'd to take over Alliance Atlantis

Dec 21, 2007

TORONTO -- Canada's TV regulator on Thursday approved a $2.3 billion takeover of broadcaster Alliance Atlantis Communications by rival CanWest Global Communications and equity partner Goldman Sachs & Co.

The Canadian Radio-television and Telecommunications Commission said CanWest Global got the go-ahead after it made key changes to its shareholders agreement with Goldman Sachs to ease earlier foreign ownership concerns.

"We are satisfied that this transaction meets the requirements for Canadian control both in law and fact," CRTC chairman Konrad von Finckenstein said as he unveiled the regulator's decision.

The CRTC approval Thursday has implications for future control of Canadian media companies by foreign players as the U.S. investment bank will virtually finance the Alliance Atlantis takeover deal.

Canadian unions and guilds, which urged the CRTC to not approve the Alliance Atlantis takeover deal because of its potential for foreign control, criticized the regulatory decision.

"Canadian rules set foreign ownership limits for a reason -- our cultural sovereignty is too important. Our primetime television schedule is already dominated by U.S. shows, thanks to the CRTC," said Stephen Waddel, national executive director of ACTRA, representing 21,000 domestic performers.

"This decision is truly alarming. Now the CRTC has allowed a U.S. company to buy a Canadian broadcaster," he added.

The CRTC said it probed the Alliance Atlantis takeover deal to ensure control of the Canadian cable channels would not be "exercised by a non-Canadian" company, namely Goldman Sachs.

Following its investigation, the CRTC said it was satisfied that CanWest Global will retain voting and operational control of Alliance Atlantis' 13 cable channels when they are combined with CanWest Global's Global Television network in a new broadcast entity.

The regulator gave the greenlight for CanWest, through a subsidiary called CanWest Investments Co., to acquire the Alliance Atlantis cable channels.

The Canadian partner will hold a 35% equity investment in the Alliance Atlantis/Global Television entity, and 66 2/3% of the voting shares.

Goldman Sachs in turn will retain the balance of both equity and voting shares.

The CRTC also insisted it was comfortable with the U.S. investment bank eventually exiting the Canadian broadcast partnership and cashing out in 2011 because CanWest Global has structured the deal to ensure it "easily" increases its investment to over 50% within four years.

Current Canadian law bars foreign companies from acquiring majority control of Canadian media assets, including broadcasters.

"Thus, taking into account the entire transaction, CanWest's share of the overall equity and voting shares does not cause concern to the Commission," the CRTC said in its ruling.

In a victory for CanWest Global, the CRTC decided not to order CanWest Global to raise it equity stake in the deal from 36% as originally proposed, to 51%, to ensure the takeover deal did not breach foreign ownership rules.

CanWest Global executives told the CRTC during hearings in November that increasing its equity stake to 51% would be prohibitively expensive for the domestic broadcaster.

To ease CRTC concerns, CanWest Global also had to change its shareholders agreement to ensure veto rights and liquidity rights did not favor Goldman Sachs.

For example, a quorum for a board meeting will be changed from an original proposal for a simple majority of the directors to be present -- in which Goldman Sachs nominees could make up a majority of the directors present -- to CanWest Global's nominees needing to outnumber the Goldman Sachs representatives on hand for a meeting to go ahead.

The CRTC also secured assurances that Goldman Sachs would not be the lead syndicator or the major debt holder as part of lending agreements to finance the Alliance Atlantis takeover.

"In light of the evidence provided by CanWest which clearly shows that Goldman, Sachs & Co. is not the lead syndicator and is a relatively minor debt holder rather than the single largest debt holder, the Commission considers that its concerns in this area have been satisfied," the CRTC said.

In addition, CanWest Global ensured that all programming decisions will remain under its control, and that the U.S. investment bank will not have any say in how programming from the combined Alliance Atlantis/Global Television broadcast entity is commissioned or aired.

"The Commission is satisfied that these changes ensure the broadcasting companies will remain under Canadian control at all times," the CRTC reiterated in its decision.

The Alliance Atlantis cable channels were valued at about $1.36 billion. CanWest Global will invest around $262.3 million for a 35% stake in the Global Television and Alliance Atlantis' channels. That will leave Goldman Sachs to finance the rest of the price tab for Alliance Atlantis' TV channels with CAN$480.8 million ($457 million) of its own money, and another CAN$765 million ($728.6 million) in bank financing and senior notes.

Gerry Cardinale, managing director of GS Capital Partners, Goldman Sachs's private equity arm, in November told the CRTC commissioners during the public hearings that the U.S. investment bank would remain a passive investor in Alliance Atlantis, and allow CanWest Global to control its destiny.

CanWest Global will also invest $136.9 million, or 10% of the value to the Alliance Atlantis channels, in original Canadian TV production to indicate to the CRTC the tangible benefits of the takeover for the domestic industry.

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