Shaw Takes Control of CanWest TV Operations

Includes: CWGVF, GS, RCI, SJR
by: Streetwise Blog

By Andrew Willis

The future of Canadian television came into high definition on Monday, as Shaw Communications (NYSE:SJR) struck a deal that gives the cable company full control of CanWest Global Communications’ (OTC:CWGVF) stable of TV channels.

Shaw will pay $700 million (U.S.) to buy out Goldman Sachs' (NYSE:GS) stake in CanWest’s lucrative specialty television assets, a move that ends a dispute between the New York investment bank and CanWest’s suitor. Shaw also struck a deal Monday to take out CanWest’s creditors.

When all is said and done, Shaw will have total control of CanWest and become a deep-pocketed and fiercely competitive rival to the major players in domestic television, CTVglobemedia, Rogers Communications (NYSE:RCI) and Quebecor.

Shaw’s move ends a saga that began in October, when CanWest filed for creditor protection. Calgary-based Shaw shook up the media sector with a surprise agreement to buy the television company from creditors for an estimated $95 million in February. Previously, Shaw had focused on cable and wireless telecommunications – corporate cousin Corus held TV assets.

Shaw’s initial deal hit a road block over the treatment of Goldman Sachs, which held the majority of the equity in CanWest’s 18 specialty channels by virtue of a financing deal put in place three years ago.

Shaw and Goldman Sachs have spend recent weeks in arbitration hearings. Sources say Shaw opened those talks with a $550 million offer, and Goldman Sachs countered with a price tag of $1.1 billion, payable over several years. Both sides clearly compromised to resolve a potentially lengthy court battle.

Shaw also reached a deal on Monday to recapitalize CanWest that will see all of the company’s bondholders bought out for $440 million. Shaw will also pay $38 million to unsecured CanWest creditors.

For bondholders, owning CanWest debt has been an incredible win. Some of the hedge funds that hold this debt bought CanWest paper for 20 cents on the dollar, and will be paid in full. Creditors already took cash out of the company in the wake of CanWest’s sale of its Australian television assets last year.

Shaw’s arrival means the end of a bid for CanWest by distressed debt fund Catalyst Capital Group that was backed by the Asper family, which founded the company in the 1970s. The rival offer depended on support from Goldman Sachs, and CanWest’s bondholders.