Indications of an ‘audacious’ Bell-Astral decision, analyst says

Following the CRTC's wireless code decision last week, the regulator may make a second “audacious” regulatory decision on BCE Inc.’s proposed $3.38-billion acquisition of Astral Media Inc., Veritas Investment Research said. Veritas analysts Neeraj Monga and Desmond Lau, in a research note Thursday, referred to CRTC Chairman Jean-Pierre Blais' speech at the Banff World Media festival on Wednesday, where he said the regulator's decision making process will mean “sometimes being audacious” with intervention and in other cases taking a “step back” and deregulating. Blais “quoted Napoleon Bonaparte and said 'the art of sometimes being very audacious and sometimes very prudent is the art of succeeding.' By that, he implied that 'what matters is having the audacity to do the right thing, the right way, for the right reasons in the right circumstances,'” Veritas said. “Recently, regulatory intervention has apparently taken two audacious steps. The first was the denial of BCE-Astral deal, and the second was the intervention in the wireless market by shortening the contract length to two years,” the note said, referring to the wireless code decision released last week. Last fall, the CRTC denied BCE's initial application to purchase Astral, saying it was not in the public interest. BCE and Astral came back to the commission with a reworked proposal and an agreement with the Competition Bureau in March to sell off radio stations and 12 specialty channels, including Teletoon and Disney, with half of them going to Corus Entertainment Inc. The Veritas note referred to Blais' speech—particularly his comment that “our decision last fall sent a clear signal that the public interest is paramount. It is the lens that Parliament has entrusted to us, under legislation, and we fully intend to carry out that public trust”—and said this a negative sign for the proposed acquisition. “In our view, this doesn’t bode well for the revised BCE-Astral merger, especially given that Bell is wrestling with questions of ‘market-share’ in an era where the emergence of non-linear i.e. multiplatform delivery of content is forcing CRTC to take a view on ‘market power’ as well,” Monga and Lau wrote. They said investors' odds on the deal, which show a favourable ruling, are not “reasonable.” Based on Astral's stock price, “it seems that investors are ascribing an 85 per cent chance of success and a 15 per cent chance of failure to the transaction. Are those odds reasonable? Not in our view,” the note said. BCE’s planned divestiture of some of Astral’s radio and TV assets will reduce its resulting market share, Veritas said, though that is not expected to address the CRTC’s concerns, such as Bell’s “inadequate demonstration” that it needs to grow in order to be able to compete against companies like Netflix Inc. Monga and Lau said the Competition Bureau’s favourable ruling on the deal does not imply the CRTC will follow suit, noting that the bureau is “merely guided by the merger enforcement guidelines regarding market power,” while the CRTC considers other factors like the public interest. CRTC spokesman Denis Carmel said Friday that the decision will be released in early summer. “We'll get it out as soon as we can,” he said, without being more specific. Bell and Astral's deadline to close the agreement is currently July 31. The decision is not expected to be released next week as Blais will be in Inuvik, N.W.T., for a hearing on telecom services in the North and the infrastructure plan of Northwestel Inc., a BCE subsidiary. On Monday, a separate research note from National Bank Financial said “we still expect CRTC approval of the amended deal.” Analyst Adam Shine wrote that, this time around, Bell “went to great(er) lengths to discharge its burden and satisfy the Commission,” promising divestures of radio and television assets and agreeing to conditions on its license. "An approximate 35-day count from May 21 points to a decision from the CRTC around June 25 which we still anticipate will be positive, though may potentially require additional commitments from Bell and possibly even additional divestitures," the note said. Shine said the commission is taking more time to make a decision since the hearing in May, and while this doesn’t make the chance of approval more likely, “it does, at the very least, signal greater deliberations in contrast to the prior expeditious rejection.” —With reporting by Anja Karadeglija at akarad@thewirereport.ca and reporting and copy editing by Simon Doyle at sdoyle@thewirereport.ca

Indications of an ‘audacious’ Bell-Astral decision, analyst says

Broadcast | June 14, 2013

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