Shaw Communications to buy control of Canwest, pay off its creditors

CanWest News Service
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TORONTO - Cable giant Shaw Communications has come to the rescue of debt-burdened Canwest and struck a deal that will ensure Global TV, the second-largest private television network in the country, remains on the air.
Under the agreement, Calgary-based Shaw (TSX:SJR.B) will get a controlling stake in Canwest and be able to rework itself to look more like its biggest competitor, cable operator Rogers Communications, which owns the Citytv stations and a few cable channels of its own.
The deal will bring Shaw a handful of lucrative specialty channels as well as Global TV.
But Shaw's agreement to buy a controlling stake in Canwest - and help it pay back creditors - offers other advantages too, suggested Shaw president Peter Bissonnette. He said taking a stake in Canwest will help Shaw bulk up its television content holdings before it starts up its mobile phone division in early 2011.
"We're going to be launching a wireless product in the next while and having content available for those customers that come to Shaw, we think would have some value," Bissonnette said in an interview.
That could mean popular Canwest shows like "House" and "24" could be streaming on Shaw's forthcoming mobile network, if the deal gets a greenlight from regulators and others.
Streaming video has become a hot topic in recent months, as CTV launches a wide array of Olympic-themed content for mobile phones and the Internet. It remains to be seen if the technology will catch on in a big way with Canadians.
But it is more than just a mobile phone play, because it'll also make Shaw an operator of local television stations and some of Canada's most popular specialty cable channels.
While a price tag hasn't been attached to the deal, some industry observers expect Shaw negotiated a discount, considering that Canwest has been struggling to restructure its overall operations.
Most of the company is currently under creditor protection, with the exception of the National Post newspaper and the specialty channels.
Canwest has been working to sell off both the Post and its major chain of Canadian newspapers - including the Montreal Gazette and Ottawa Citizen - which are not part of the Shaw deal. They are expected to be sold before the restructuring under court protection is completed.
Bissonnette said Shaw was never interested in buying the newspapers.
Under the deal, Shaw will own at least 20 per cent of Canwest's equity and 80 per cent of its voting stock. Canwest would remain a standalone company with its own board of directors and its own management team.
In terms of assets, the agreement would give Shaw 11 local TV stations across the country, and ownership of a group of specialty channels, including Showcase, MovieTime and HGTV, some of which were acquired from Alliance Atlantis in 2007.
Canwest spokesman John Douglas would not comment on whether Asper will leave his post, but confirmed the Shaw agreement would buy out all of the current shareholders - which presumably would include the Asper family.
Shaw's announcement said financial terms of the deal would be filed with Ontario Superior Court on a confidential basis and remain so until court approval is obtained, which must be done by April 15.
Both companies will meet in court next Friday to flesh out some of the details, which could include more details on the price for the deal, and the fate of the Asper holdings, and whether Leonard Asper will continue to be linked with the company.
The recapitalization must be completed by Aug. 11, at which time Canwest will delist from the TSX Venture Exchange.
Jim Shaw, president and CEO of the diversified communications company founded by his father JR Shaw, said the deal will result in Canwest as a "pure play" Canadian broadcaster. Shaw will take "effective control of one of the premier broadcasters and owners of content in the Canadian broadcasting industry at a reasonable valuation," he said.
"We believe that Shaw's investment results in a number of benefits to the broadcasting system, including an ability to strengthen local programming, ensure the ongoing viability of the second-largest private conventional television network in Canada and sustain a dynamic and competitive television market."
Winnipeg-based Canwest, which owes billions of dollars to its creditors, has been operating under court supervision since last year. More recently, it put the newspapers up for sale in a separate but related court-supervised process.
Shaw executives had expressed interest for some of Canwest's assets at the company's annual meeting last month, but hadn't hinted at taking a controlling stake in the company.
Bissonnette said the move makes sense for Shaw because of the growing demand for cable and mobile phone operators to have a wide array of television programming to offer subscribers on-demand, both on their set-top boxes, through smart phones and on the Internet.
"The ownership of content, particularly as we go into broadband wireless applications... we think that content is going to be ever-more important," he said.
Shaw has said it plans to launch its own wireless services by early 2011, entering a highly competitive market for mobile devices that includes several new discount carriers, as well as longtime market leaders Rogers, Bell (TSX:BCE) and Telus (TSX:T).
Some industry observers have suggested that Shaw should've kept its eye on the basics of moving into the mobile phone market, rather than planning such an ambitious media launch pad.
"Every time people who are not in the content industry jump up and down and spend a lot of money on buying content... that hasn't worked out well," said Duncan Stewart, director of research and analysis at DSam Consulting.
"There are exceptions - Rogers has done it and hasn't completely exploded (after buying Citytv), but although Rogers Media is by and large doing OK, it hasn't been a huge win."
Desjardins Securities analyst Maher Yagi said that he considers the Canwest agreement to be "slightly negative" from a shareholder's perspective.
"We would have preferred Shaw to concentrate on its plans to deploy a new wireless network in Western Canada rather than buy into a media business," he wrote in a note.
"In our view, a potential downside to this transaction is that investors could be unwilling to continue paying such a premium multiple given the company is now reinvesting some of its cash flow in a media business, which may not earn as high a return as its core cable business."
On Friday, Shaw shares closed 2.5 per cent lower, down 50 cents, to $19.30 on the Toronto Stock Exchange.
Canwest said the proposed deal with Shaw has the support of key creditors.
Canwest's chairman, former Canadian ambassador, federal civil servant and business executive Derek Burney, said the company is "very pleased" with Shaw's commitment and with support it has received from the company's creditors.
"While there is much work still to be done, Shaw's commitment represents an important step towards a successful financial restructuring of Canwest and is supported by the company and the members of the ad hoc committee," Burney said in a statement.
Shaw is a publicly traded company controlled by the Shaw family through its ownership of multiple-vote shares.
Canwest's publicly traded shares, which would be delisted after the takeover, closed Thursday at six cents on the TSX Venture Exchange. Canwest has been controlled by the heirs of founder Izzy Asper, through multiple-vote shares and management has been led by his son Leonard Asper.
Leonard's brother and sister, David and Gail Asper, resigned from the Canwest board of directors earlier this week.

Organizations: Canwest, TSX, Shaw Communications Citytv Rogers Communications National Post Montreal Gazette Ottawa Citizen Alliance Atlantis Ontario Superior Court BCE Telus DSam Consulting Rogers Media Desjardins Securities Toronto Stock Exchange Leonard's

Geographic location: Western Canada, TORONTO

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