The decision by the federal broadcast regulator to bless the joint purchase of Alliance Atlantis Communications Inc. by CanWest Global Communications Corp. and U.S. investment bank Goldman Sachs Group Inc. could open the door to more foreign ownership of Canadian media businesses.
But industry watchers say the approval on Thursday of the $2.3-billion purchase is unlikely to result in a flood of major investments by global media companies such as Disney Co. and Time-Warner Inc.
"It's an uphill battle if you have a strategic player," said Peter Grant, senior counsel at McCarthy Tetrault in Toronto and a specialist in media transactions.
"It would be a much different case if [the buyer] was a Disney, or a Time-Warner."
Goldman is injecting the majority of the equity into the joint venture with CanWest. However, the bank will be confined to 33% voting control and minority board representation, in keeping with Canadian foreign ownership laws.
Cable companies have been permitted similar ownership structures, but this is the first time for a Canadian broadcaster and programmer, analysts say.
In either scenario, they note that there is a difference between a majority investment by a foreign bank and a foreign strategic player, in that the communications company would be perceived to have a long-term interest in a Canadian broadcasting business and the means and opportunity to try to influence programming decisions for its own benefit, said Mr. Grant. For example, it could push its "library" of programming onto the Canadian broadcaster.
"It's not just a question of whether there is control in law, but whether there is control in fact," he said.
Mr. Grant declined to comment on the specific details of the Alliance Atlantis transaction because he acted as regulatory adviser to the company.
But Paul Holman, managing director of ratings agency DBRS, said the short-term nature of Goldman's involvement is evident in the terms of the deal, and a factor in his conclusion that "it would be too much to assume this is an unofficial removal of foreign ownership by the regulator."
Goldman Sachs "could very well be gone" in 2011, when CanWest will roll its two traditional TV networks into the company created to house the Alliance Atlantis niche specialty TV channels, Mr. Holman said. A series of put and call options built into the deal assume that CanWest will buy out the private equity arm of Goldman Sachs, or that the bank's share will be sold or spun out to the public in a share offering.
The bank's involvement appears to be "the opportunistic behavior of an investor over the near term," Mr. Holman said "If this was News Corp. with long-term ambitions in Canada I think the review could have gone differently."
CanWest and Goldman Sachs were told to make minor changes to their shareholder agreement, in addition to tweaks in board representation and dollar amounts tied to veto power that were made during hearings in November. Goldman will not have any representation on a board that makes programming decisions.
On Thursday, the CRTC also ruled that CanWest will have to pay an additional $14.4-million in "benefits" to the Canadian television and production industry, or $2-million a year over seven years. CanWest had initially asked permission to pay the industry benefits over a 10-year period.
The Commission said the broadcasting assets in the transaction should be valued at $1.5-billion, rather than the $1.37-billion put forth by Can-West. Ben Mogil, an analyst at Westwind Partners Inc., told clients in a note that the change is "relatively de minimis" given the combined earning potential of the combined broadcasting businesses.
© National Post
