‘Expect a spirited CRTC review’ of Shaw-Canwest deal: BMO report

Shaw Communications Inc.’s plans to acquire a controlling stake in Canwest Global Communications Corp. may be held up by the CRTC’s approval over concerns about foreign ownership and media convergence, says a BMO Capital Markets report released Tuesday. Shaw announced Friday its intentions to acquire a minimum 20 per cent equity interest and an 80 per cent voting interest in a restructured Canwest. The deal, which would see Shaw gain access to Canwest’s conventional and specialty television channels, is subject to CRTC approval. The report, written by BMO analyst Tim Casey, foresees a “spirited CRTC review,” as the deal would allow Shaw to “control two (Corus, Canwest) of the five (CTV, Astral, Rogers) major national broadcasters in Canada.” Casey was not available for an interview. “This issue is by far not a done deal,” Desjardins Securities analyst Maher Yaghi told The Wire Report in an interview. “ might have to do some re-jigging or give up some channels. But does not believe the CRTC is going to have big issues with how the deal is done.” The BMO report notes that the deal is likely to go through since Shaw will meet the CRTC’s current market share guidelines, which say no entity can have more than 45 per cent of television viewing share. The CRTC will examine foreign ownership. Wall Street investment-banking firm Goldman Sachs currently owns 65 per cent of the equity in Canwest Media. Should the Shaw deal go through, Goldman would lose its majority voting powers in the restructured Canwest media group to Canadian investor Shaw. “There was an existing relationship between Goldman Sachs and Canwest-Global where there were going to be various tests that would bring that ownership on side with Canadian ownership rules. That 65 per cent was going to come down to a minority stake one way or another,” CIBC World Markets analyst Robert Bek said in an interview. “Shaw will have an option to buy , but they will not necessarily have a gun to their head to play along with .” The National Post reported Monday that Goldman lawyers said they were “gravely concerned” that Shaw and Canwest had entered a deal without informing the investment banking firm. Goldman says it is not necessarily opposed to the deal, and Canwest and Shaw now say they intend to involve the firm in negotiations. The BMO report notes that the precedent set by the Globalive case in December 2009 will likely impact the CRTC’s decision. The CRTC had initially refused Globalive entry into the wireless market because Egyptian company Orascom owned 65.1 per cent of Globalive’s equity. The Conservative government later overturned the decision in favour of Globalive. “The CRTC is a lot more lenient on the distribution side of things , but certainly they have set a precedent on foreign ownership with deal. They say they haven’t, but they certainly have,” Bek said. “On the content side, the Broadcast Act that oversees these channels is way more stringent … I don’t think has direct implications for content, just yet, but it certainly opens the door.” Analysts point out that previous media convergence decisions weigh favorably on the deal. “There is enough precedent to allow the cable operator to get into these assets,” Bek said. “Rogers has acquired a bit of the same assets in recent years and Quebecor has a lot of similar assets … I doubt it’s a big stumbling block.” The deal between Canwest and Shaw would allow the Calgary cable provider and satellite-television provider to consolidate its content over different platforms by offering Shaw-branded content on its upcoming wireless mobile services. Shaw spent about $190 million on wireless spectrum licenses in 2008. But Yaghi said Shaw should have concentrated on launching its wireless services rather than moving to offer media content. “ always thought the venture into a media operation would come after having established a wireless business, but given how much they are spending, it’s more about the time and effort … rather than the cash they’ll put in, because we don’t expect that number to be quite high,” he said. “Shaw has mentioned they want to announce the complete form of what their wireless venture will look like by the second part of 2010. I don’t think they are going to be late on that.” Bek disagreed, saying Shaw is right to be cautious as it moves into the wireless market. “Shaw is still debating the wireless opportunity, given the capital required to get into it at this stage in the game, and given the nature of the spectrum and the pricing,” he said. “This deal gives more evidence into that as far as creating value. I don’t think they look at wireless as being the sole or the best opportunity right now.” The BMO report also says the CRTC will consider the impact of the Shaw-Canwest deal on the fee-for-carriage debate. If Shaw gains control of Canwest Media, CTV will be the only remaining large champion of fee-for-carriage. Canwest will transfer to Shaw’s side of the debate, backed by Rogers. “This high-profile, contentious topic , has been reviewed three times in four years. Were Shaw successful, it effectively goes away as fee-for-carriage has been championed by CTV and CanWest and opposed by Rogers and Shaw,” the report says. The BMO report predicts the CRTC will take at least six months to reach a decision on the deal. “If an agreement with Goldman Sachs is reached, Shaw would then proceed with a formal CRTC filing. We expect a robust list of objections from other parties, but ultimately … we doubt this deal closes in 2010,” it says.

‘Expect a spirited CRTC review’ of Shaw-Canwest deal: BMO report

Broadcast | February 16, 2010

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