Canadian media companies are arming themselves for a takeover battle of unprecedented ferocity, and uncertainty, as they prepare bids for Alliance Atlantis Communications Inc. At least four rivals are expected to take a serious run at Alliance, which was formally put up for sale Wednesday by controlling shareholders Michael MacMillan and Seaton McLean and which now enjoys a premium stock valuation of more than $2.1-billion.
All these players hanker for the specialty TV channels, but face a struggle to determine the value of the company's stake in the CSI crime drama franchise.
In contrast to the quiet sale of CHUM Ltd., where just two rivals were invited to bid by the company founder's family, the Alliance sale is shaping up as a brawl.
Corus Entertainment Inc. has been working on a bid for a year, according to sources close to the company. The radio and broadcast company, controlled by the Shaw family of cable-TV fame, is expected to duel with CanWest Global Communications Inc., Astral Media Inc. and Rogers Communications Inc. Long-shot contenders are seen to be Quebecor Inc. and even newspaper publisher Torstar Corp., and private equity players are also modelling a takeover of the company, followed by a sale of its pieces.
With this many potential bidders, none of whom have shown their hands, analysts and traders are setting a broad range on just what it will cost to win Alliance. The company's B shares closed yesterday at a record high of $50.05 on the Toronto Stock Exchange, up $1.05 on the day and 60 per cent over the past year.
Merrill Lynch's Ihor Danyliuk moved his takeover target to a maximum of $52 a share. At Desjardins Securities, Carl Baynard put the price at $60. One trader who covers the hedge fund community said it is easy to build scenarios that see Alliance command more than $63. At the extreme, the sales desk at Scotia Capital published a report justifying a $71 final price, or more than $2.6-billion.
"While the prices discussed about are quite high, we believe that the once-in-a-lifetime nature of such a purchase, and the operating synergies available to these players, and the ability to access capital at very attractive rates combine to create a window to pay these kinds of multiples," said CIBC World Markets analyst Bob Bek, whose more modest forecast sees the company fetching slightly more than $50 a share.
Alliance's 13 specialty stations, including Showcase and the History Channel, are expected to change hands at between 13 and 15 times their earnings before interest, taxes, depreciation and amortization. That's in line with past media takeovers; CHUM changed hands at 12.9 times EBITDA.
The unknown quantity in all these estimates is the value of the top-rated CSI franchise, which is co-owned with CBS Corp. The contract between Alliance, CBS and series producer Jerry Bruckheimer is not public, but is expected to contain rights of first refusal and other nuances that could weigh on its value to a buyer.
Analysts' estimates of the price that Alliance's CSI stake will command range from $530-million to $1-billion. Portfolio manager Christopher Fernyc of Bisset Asset Management, Alliance's second largest shareholder, said of CSI: "Management is as positive as ever on it, but they can't tell you anything about it. So it's kind of a black box."
Several potential bidders have lined up the financial firepower needed to buy Alliance. Corus is working with TD Securities on its bid, while Astral has the support of National Bank Financial. CanWest has enlisted Goldman Sachs as an adviser, and has Citigroup selling its Australian television holdings, a sale that's expected to put more than $1.5-billion in CanWest's coffers in the new year.
One investment banker said Torstar might emerge as a bidder for Alliance Atlantis, but probably isn't big enough to do it alone. He said the newspaper company, which publishes the Toronto Star, probably would have to join forces with a private equity player.
Robert Prichard, Torstar's chief executive officer, sits on the board of Onex, the biggest private equity firm in Canada. People who know Onex said Alliance is not on its radar screen even though Onex used to be an Alliance investor. Analysts said they would be surprised if Torstar launched a bid for Alliance.
RBC Dominion Securities is advising Alliance on the possible sale.
© Globe and Mail
