October 19, 2012 / 1:48 AM / in 5 years

UPDATE 7-Canadian regulator blocks BCE's $3 bln Astral takeover

* Regulator says deal would give BCE too much power

* Decision can be appealed to Federal Court of Appeal

* Broadcast regulator becoming consumer advocate -analyst

* BCE condemns ruling; to ask federal govt to intervene

By Randall Palmer

GATINEAU, Quebec, Oct 18 (Reuters) - Canada’s broadcast regulator blocked BCE Inc’s C$3 billion ($3.05 billion) takeover of Astral Media on Thursday, declaring the deal would give too much power to BCE, already the country’s biggest telecoms company and owner of numerous TV and radio assets.

“BCE failed to persuade us that the deal would benefit Canadians,” said Jean-Pierre Blais, who took over as chairman of the Canadian Radio-Television and Telecommunications Commission (CRTC) four months ago.

It was the biggest deal the commission has ever blocked and a leading industry expert said it marked a shift toward standing up for the consumer.

“In four months, Blais has transformed the CRTC into a pro-consumer advocate, creating the kind of regulatory agency that until recently was scarcely imaginable. The change is long overdue,” said Michael Geist at the University of Ottawa.

BCE criticized the decision and said it would ask the federal government to intervene and issue directions to the broadcast regulator to overturn the ruling.

However, a spokesman for Canadian Heritage Minister James Moore said the commission’s ruling would stand.

“Cabinet cannot overturn this decision,” he said in an e-mail. “The CRTC held public hearings and has rendered its decision on this matter. CRTC decisions are made independent of the Government of Canada.”

The decision is good news for media company Quebecor Inc , which feared a BCE takeover of Quebec-based Astral - which owns specialty-TV channels and radio stations and produces programming - would challenge its dominance of French-language content.

The ruling also benefits BCE’s English-language rivals, including Rogers Communications Inc, which said BCE was already abusing its power as an integrated broadcaster and distributor. Rogers called the commission’s ruling “courageous”.

“The CRTC found steel in its spine,” said Iain Grant, managing director of telecoms consultancy Seaboard Group. “I just think this whole thing was unpalatable.”

The decision can be appealed to the Federal Court of Appeal but cannot be overturned by the federal cabinet, the CRTC said.

The opposition New Democratic Party and the separatist Bloc Quebecois both welcomed Blais’s decision.

BIG SETBACK

BCE and Bell, its media arm, countered that the commission ignored its own rules and guidelines on such deals and complained about what it said was behind-the-scenes lobbying by Bell’s cable rivals.

“Canadian broadcasting needs significant new investment, fresh ideas and increased choice in a time of cable company dominance in media and accelerating competition from foreign giants who invest little to nothing in the Canadian broadcasting system,” said Mirko Bibic, Bell’s chief legal and regulatory officer.

Even if BCE’s appeal against the broadcast regulator’s decision is successful, however, the transaction also needs to win a nod from Canada’s antitrust watchdog, the Competition Bureau, which has yet to issue its ruling on the deal.

The rejection is set to trigger a sell-off in Astral shares on Friday. The company’s Class A shares closed 3 percent lower at C$47 on Thursday, as some investors sold out ahead of the ruling on fears the commission would veto the deal.

BCE had offered Astral shareholders C$50 per share, a nearly 40 percent premium to the stock’s close a day before the deal was announced.

UBS analyst Phillip Huang warned that the ruling may also hurt BCE’s stock, which has risen about 9 percent since the deal was announced on March 16.

“We believe the failure of this deal may lead some to question the potential impact on BCE’s future dividend increases and flexibility to fund increasing capital expenditure to accelerate growth,” Huang said in a note to clients.

Quebecor, Rogers and other competitors said the deal would have allowed BCE to lock up more programming for its vast media platform and would have given the company too much heft and pricing power in the market.

They launched a strong campaign against the deal that featured TV commercials and full-page newspaper advertisements, and held news conferences outlining their concerns.

They worried that the deal would allow BCE to extract exorbitant prices for content, and warned that this would lead to higher prices for consumers.

The commission argued that in English-language television, the combined BCE-Astral would have controlled an unprecedented amount of revenue and viewing options.

The regulator has a policy of quickly approving transactions that keep a company’s control under 35 percent of total television audience share, and carefully examining transactions which yield a 35 to 45 percent share.

It concluded that on the French-language side the takeover would have given BCE 33.1 percent of viewership of Canadian TV services and 42.7 percent on the English-language side.

BCE argued that viewing of U.S. and other non-Canadian services should be included in the calculation, cutting its share to 24.4 percent in French and 33.5 percent in English - under the cautionary level of 35 percent - but the CRTC rejected that formula.

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