Canwest explores strategic alternatives to raise more cash; could sell assets

CanWest News Service
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TORONTO Canwest Global Communications Corp. (TSX:CGS) could put Australias Ten television network back on the auction block in an effort to raise more cash in a tough financial environment, an analyst suggested Monday after the company announced a strategic review.

The Winnipeg-based company said Monday that it was looking at divesting non-core assets as it reviews its strategic alternatives corporate terminology that generally suggests a company is considering a range of options that could include its sale.

The announcement came as Canwest also said its bankers have limited borrowing under the Canwest Media divisions $300-million senior credit facility.

The company said its bankers will limit additional borrowing under Canwest Medias credit line to $20 million until Feb. 27. There is already $92 million drawn on the facility.

One analyst, who asked to remain anonymous, said that Canwest could begin shopping around its Ten television network assets and other operations.

Its safe to say that everythings on the table at this point, he said in an interview.

Other potential pieces of the company that could hit the market are Canwests radio station assets in Turkey and the Eyecorp advertising business in Australia.

However the analyst also noted that the struggling economy and tough credit markets are making it difficult for companies to sell their assets at a good price.

It probably wouldnt be a preference for Canwest to sell at this point, he said.

Canwest declined requests to speak with an executive about the companys plan, and would not answer questions about what it considered a non-core asset.

Were not going to go any further than we have, company spokesman John Douglas said in response to requests for additional details.

Canwest has considered selling the Ten network before. The company first put the commercial television channel up for sale in October 2006 with a valuation of about C$1.2 billion.

Rupert Murdochs News Corp. considered buying the assets, but decided the asking price was too high.

After a failed search for an offer that it deemed attractive, Canwest yanked Ten off the market and completed a share exchange plan that gave it majority ownership of the network.

The Australian operations have struggled since then, posting a drop in operating profits during its first quarter at $91.6 million in earnings before interest, taxes, depreciation and amortization for the quarter, down from $122.5 million a year earlier.

Canwest, owner of the Global television network, the National Post and an array of big-city Canadian daily newspapers, has been struggling with debts and loans.

Mondays announcement follows Canwests mid-January disclosure that Canwest Media was in danger of violating debt covenants.

Since that announcement, there has been a further deterioration in the Canadian economy including in the retail sector which has negatively affected some of the companys business units beyond what was originally forecast, Canwest stated.

It said Canwest Media may not be able to comply with its quarterly financial leverage covenants for its second quarter, which runs from December through February.

However, Canwest also said that based upon current cash flow projections, the company believes that access to the reduced facility will enable it to continue to operate normally through this period,

Canwest said the company will continue talks with its bankers on further amendments, which could reinstate its full access to the credit after Feb. 27.

It added that it is seeking further amendments which would reinstate full access to the credit line, and continues to take proactive steps to reduce its operating and capital costs, restructure its operations and improve efficiencies.

Scotia Capital analyst Paul Steep said in a note that he remains concerned about Canwests debt position.

Our view is that Canwest continues to take steps on all fronts to deal with the slowing economy and its outstanding debt including: potential divestitures, restructuring, regulatory relief, and collection of outstanding amounts owed, he said in a release.

Steep reiterated an underperform rating on the stock.

Canwest reported last month its advertising sales have been eroded by the deteriorating economy, and reported a $33-million quarterly loss, or 18 cents per share, reversing a year-earlier profit of $41 million or 23 cents per share. Revenue was $886 million, up two per cent from $867 million.

The company bought the former Southam newspaper chain from Conrad Blacks Hollinger group in 2000 for $3.2 billion, then spent $2.3 billion for the Alliance Atlantis specialty TV broadcaster two years ago.

About two-thirds of its Alliance debt is held by New York-based investment bank Goldman Sachs, which can effectively take control of Canwest if it falls short of cash-flow and rate-of-return benchmarks.



Organizations: Canwest, TSX, Rupert Murdochs News National Post Alliance Atlantis Southam Goldman Sachs

Geographic location: Australia, TORONTO, Turkey

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