CanWest Global pressured to show its in charge of acquired specialty channels

CanWest News Service
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GATINEAU, Que. The federal regulator challenged CanWest Global Communications (TSX:CGS) to ensure that it will retain control of one of Canadas leading entertainment companies despite putting up only a minority stake in the $2.3 billion takeover.

The Canadian Radio-television and Telecommunications Commission kicked off hearings into the controversial takeover of Alliance Atlantis Communications Inc. (TSX:ACC.B) on Monday by expressing concerns about the role to be played by New York-based investment firm Goldman Sachs, which is putting up 64 per cent of the money.

CanWest president and CEO Leonard Asper and Goldman Sachs managing director Gerry Cardinale issued a firm assurance that control of broadcasting decisions would remain in Canadian hands.

Domestic control of Canadian broadcast companies is required under federal broadcasting rules.

I want to assure you that Goldman Sachs does not wish to control any Alliance Atlantis or CanWest broadcasting entity, said Cardinale. This transaction has been designed so that CanWest is in control ... . We are not television operators, nor do we wish to be.

The deal would add Alliances 13 specialty stations, including Showcase and HGTV, to CanWest Globals market reach. Goldman Sachs would get one-third of the voting shares and 64 per cent of the equity in the entity, including Alliances lucrative interest in the CSI television franchise.

Despite its 36 per cent minority position, the agreement gives CanWest Global control through majority of the voting shares.

But several interveners told the commission that Goldman Sachs has placed such onerous revenue conditions on CanWest Global that its priorities will take precedence, and may result in CanWest eventually losing control.

The Directors Guild of Canada pointed out that whether CanWest retains day-to-day operational control of the Alliance assets, the deal should be rejected because the Broadcasting Act calls for effective Canadian ownership and control.

What the intervention stresses is that this is basically an ownership issue, said Guild counsel Robert Buchan.

Buchan added that under the agreement, Goldman Sachs could acquire majority ownership of the existing CanWest Global, along with the Alliance stations, should the Canadian broadcaster fail to meet debt, cash flow and rate of return targets.

In direct questions to Asper, CRTC chairman Konrad von Finckenstein said he was troubled by the lack of a specified, formal executive committee in the proposal, and sought assurance that Goldman Sachs, as the majority stakeholder, would not exert effective control.

If you want to trade one channel for another, that is a strategic decision and you would need approval from Goldman Sachs, the CRTC chairman asked Asper.

As well, he said decisions valued at more than $22 million would also have to be floated by Goldman Sachs management.

Asper responded that the agreement with Goldman Sachs is primarily a financial one and the Wall Street giant wouldnt have a key role in strategic broadcasting decisions.

While the foreign-based partner would be able to restrain CanWest from certain decisions, They cant cause us to do anything, he said.

Asper wrapped up his testimony by saying he took the commissions concerns very seriously and would endeavour to address them when he returns at the tail end of the hearings.

The CanWest head would find it a more difficult task if he had to satisfy the coalition of union and special interest groups lined up in opposition to the deal.

Aside from the Directors guild, about a dozen unions and special interest groups have lined up to oppose the acquisition over the ownership issue.

On the face of it, the lawyers appear to have a very good job meeting the strict legal conditions (of the Broadcasting Act), said Garry Neil, of the Council of Canadians, referring to the majority voting position held by CanWest.

But it will be very difficult to satisfy us given the current balance of investment by CanWest versus the investment coming from Goldman.

As well, the Communications, Energy and Paperworkers Union blamed recent layoffs at CanWest on the companys need for cash to meet the financial thresholds required under the Alliance purchase.

We have a problem when in less than a month, over 200 people have lost their jobs, said union spokesman Peter Murdoch. Frankly, if the bank has 65 per cent of my mortgage, I know the bank has control of my house.

In defending the arrangement, Asper said CanWest needs the ability to grow in order to compete in the fast-growing specialty channel market, which he said is swallowing up much of the growth in advertising revenues and audience share.

For CanWest to be competitive in this changing world, we need to diversify our revenue sources and reaggregate some of the audience lost to specialty, Asper said.

CanWest also pledged to use $123 million for programming initiatives, including new Canadian television programming.

CanWests media holdings include the Global TV network and major city newspapers, including the National Post.

Organizations: CanWest Global Communications, Goldman Sachs, Alliance Atlantis Communications Inc. Canadian Radio-television and Telecommunications Commission TSX Energy and Paperworkers Union National Post

Geographic location: Canada

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