5 Min Read
OTTAWA (Reuters) - Cable operator Shaw Communications Inc has agreed to buy a controlling stake in the television business of debt-swamped Canwest Global Communications Corp, Canada's biggest media company, the two firms said on Friday.
Shaw, which owns cable and telecom services in Western Canada, said it will buy a minimum 20 percent equity stake and 80 percent voting interest in Canwest Global, which has been struggling under a debt load of about C$4 billion ($3.8 billion).
No terms were disclosed for the acquisition, which will give Shaw control of Canwest's national television network and specialty TV channels.
Canwest's print assets, including Canada's biggest chain of daily newspapers, are not included in the deal.
Shaw is one of Canada's three big cable-TV companies, competing against Toronto-based Rogers Communications and Montreal-based Quebecor.
"They're basically trying to buy content for their cable business," said Desjardins Securities analyst Maher Yaghi in an interview. "Rogers and Quebecor have media divisions; Shaw is not particularly strong in that business."
Canwest's specialty channels, including HGTV, Showcase and Fox Sports World, are prime content for cable.
Canwest filed for creditor protection in October 2009 for its television operations, including its Global TV network and specialty channels.
Financial terms of the deal with Shaw are sealed pending a court hearing likely held February 17, a Canwest spokesman said.
BMO Capital Markets analyst Tim Casey, who estimated the investment at about C$100 million, said the "surprising development" has potential to be a good long-term deal for Shaw. "This is positioned as a strategic transaction. Convergence is back," he said in a note.
Canwest shares more than doubled to 13 Canadian cents from 6 Canadian cents on the TSX Venture Exchange. Shaw shares fell 2.5 percent, however, as some investors worried that Shaw is taking on too much risk.
"It's not completely unexpected, the content is required, it's just we see more risk in it than benefit," Yaghi said.
"I think a lot of people were hoping for Shaw to make a move on the wireless business."
Shaw spent C$189.5 million in a government auction of wireless spectrum in 2008, but has made only vague statements about its plans.
Quebecor, through its Videotron unit, also plans to launch wireless service this summer, and Rogers is already Canada's biggest wireless operator. Rogers' wireless competitors are BCE Inc and Telus Corp.
Shaw's investment in Canwest Media does not affect Canwest's newspaper division and the auction now under way for its newspaper assets. The publishing business, with the exception of the National Post newspaper, was put into creditor protection on January 8.
Canwest financial advisor RBC Capital Markets selected Shaw as the preferred equity investor after a solicitation process that stretched over several months.
"We are excited about the investment and gaining effective control of one of the premier broadcasters and owners of content in the Canadian broadcasting industry at a reasonable valuation," said Shaw Chief Executive Jim Shaw.
The arrangement with Shaw fulfills a requirement in Canwest's support agreement with debtholders for new equity investment. The transaction, which requires creditor, court and regulatory approval, will take place after Canwest has restructured and emerged from creditor protection.
Canwest said that Shaw is prepared to fund cash payments to affected creditors, Canwest Media and other Canwest subsidiaries involved in the bankruptcy proceeding.
It is also prepared to fund cash payments to existing shareholders in exchange for additional equity in the restructured company, Canwest said.
Shaw said its initial equity interest will exceed 20 percent depending on the number of Canwest creditors that elect cash, rather than shares, in the restructured Canwest.
"The industry's investments in media assets have historically not generated stellar returns," UBS analyst Phillip Huang said in a note on Shaw's move.
"We believe the investment in media assets, the inherent uncertainties related to the impact of launching a wireless business, and intensifying competition with Telus will increase Shaw's risk profile in 2010."
Some of Canwest's debt is tied to a 2007 television expansion deal with an affiliate of U.S. investment bank Goldman Sachs to buy specialty-TV group Alliance Atlantis Communications for C$2.3 billion.
Goldman, which holds 65 percent of those assets, will need to agree to any restructuring plan for Canwest to emerge from creditor protection.
In 2000, Canwest acquired newspapers from former press baron Conrad Black's Hollinger International in a deal worth C$3.2 billion.
Shares of Shaw fell 2.5 percent, losing 50 Canadian cents to end at C$19.30 on the Toronto Stock Exchange on Friday and down 48 cents to close at $18.34 in New York.
Reporting by Susan Taylor, with additional reporting by Ashutosh Joshi in Bangalore; editing by Peter Galloway