How the CanWest Takeover Will Change the Canadian TV Landscape

by: Streetwise Blog

By Andrew Willis

Today is a good day for TV viewers, an excellent day for Goldman Sachs (NYSE:GS) and a handful of vulture funds, and a kick in the teeth for CTVglobemedia.

Shaw Communications (NYSE:SJR) spent an estimated $65 million Friday to effectively take control of broadcaster CanWest Communications (OTC:CWGVF), which filed for creditor protection back in October, after limping into the recession with far too much debt. CanWest advisor RBC Dominion Securities did a bang up job here of enticing offers at an auction that was expected to be sparsely attended.

Once regulators sign off, and the CRTC should embrace this deal, Canadians will be tuning into a national network and a stable of specialty channels backed by a deep-pocketed cable company, not a financial basket case. This has to be good news for the on-air product.

At Goldman Sachs, they will celebrate a deal that effectively resets ownership of CanWest’s solidly-performing collection of 13 specialty channels, including History TV and Showcase. The private equity arm of the New York investment bank is finally getting the Canadian operating partner it thought it had back in 2007, when Goldman Sachs backed CanWest CEO Leonard Asper’s $2.3 billion takeover of Alliance Atlantis Communications.

Once the dust has settled, CanWest’s specialty channels will likely end up controlled by Corus Entertainment (CJR), a company that’s also controlled by Calgary’s Shaw family. In a note to investors on Friday, Thomas Weisel Partners analyst Ben Mogil said: “We would imagine Corus purchasing the 35% stake in the Alliance cable channels and the put for the remaining 65% from Goldman Sachs.”

Corus and Goldman Sachs executives have discussed a deal for CanWest’s specialty channels in the past, and the investment bank is likely to take a long view on this holding, and support any plans Shaw or Corus may have to improve performance.

CanWest’s creditors, a crowd of distressed debt funds that bought the media company’s paper at anywhere from 20 cents to 80 cents on the dollar, score a tidy win on this investment, as Shaw’s arrival restores CanWest’s balance sheet.

If we’re adding up the winners and losers, well, this is a dark day for the Asper family. The new owners have no need for Leonard Asper’s services at the company founded by his father.

The most interesting component of this deal is what it means for the competitive landscape.

There will be gnashing of teeth today at Astral Media (OTC:AAIAF), which had eyes for the specialty channels, but no interest in CanWest’s conventional broadcast network, Global Television. However, the stakes remains the same in Astral’s core business units: Radio, specialty TV and outdoor advertising.

It’s CTVglobemedia and, to a lesser extent, network owners Rogers Communications (NYSE:RCI) and Quebecor, that suddenly face the prospect of a stronger rival, as Shaw backs Global Television. An already difficult conventional TV sector gets even tougher to navigate. The cost of buying programs is likely to rise. Shaw is unlikely to support CTVglobemedia’s push for fee for carriage from cable companies. Rogers, which owns a TV network, was dead against the idea.

CTVglobemedia is a private company and owns the Globe and Mail.