V I D E O • A G E AP R I L 2 0 1 0 46 (Continued from Cover) “Shaw’s Dumb Pipes” James Robert Shaw, 76, entered the television business in 1970 when the CRTC licensed his company, Capital Cable, to provide cable TV services to Edmonton. In 1972, he took the company public. Subsequently, the company was renamed Shaw Cablesystems and, having grown a great deal, moved to Calgary in 1995. In the process, the founder legally changed his name to JR and is now the company’s executive chairman. JR’s son Jim, now 52, took over as CEO in 1998, after running his own construction business. Today, Shaw has 10,000 employees and is traded in the Toronto and New York stock exchanges. In addition to acquiring specialty channels and content, Shaw’s deal could also pre-empt a move by broadcasters to ask for retransmission fees from cable and satellite companies. On a different note, it is ironic that all of Canada’s major TV developments spur from either Edmonton or Calgary, in the coldest parts of Alberta. Some 27 years ago, in 1983, this reporter had to quickly leave the NATPE market in Las Vegas on a February morning to fly on a moment’s notice to sub-freezing Edmonton to interview Charles Allard, then Canada’s major broadcaster and producer. That was Allard’s first interview to any media (it appeared in the April Issue of VideoAge). At that time his TV group, Allarco, controlled a pay-TV service, a few TV stations, cable TV interests and produced Second City TV (sold to NBC in the U.S.). Later, Allarco’s TV stations and its stake in WIC’s TV operations were sold to CanWest in 1999. Fast-forward to February of 2010, when this reporter was in Canada. Edmonton came back in the picture, once again as Canada’s key TV group, when the news of the Edmonton-Calgary’s Shaw takeover of CanWest broke out. been shopped around for months without suitors emerging. The lack of competition was probably the reason that Shaw only requested a C$5 million break fee and a C$2.5 million reimbursement fee from CanWest if the deal doesn’t go through. It is clear, however, that Goldman Sachs wants to extract the best deal for itself, while sitting on both sides of the fence. Canada’s daily The Globe and Mail commented: “Everything comes back to Goldman. To follow the twists of CanWest’s restructuring — it has been operating under protection from creditors since October — you’d never know that Canada is a country in which, technically, it’s illegal for a foreign entity to control media assets. All roads lead to [Goldman Sachs].” Reportedly, Catalyst is providing the bulk of financing for the new recapitalization bid, while the Aspers will contribute up to C$15 million for a C$120 million bid on a 32 percent stake in CanWest Media. However, the Ontario Superior Court overseeing the restructuring of CanWest already approved Shaw’s takeover bid, calling it the “best overall offer.” Once the deal is also approved by the CRTC, Canada’s regulatory agency, and the federal Competition Bureau, Shaw will pick up a “minimum” 20 percent equity interest and 80 percent voting interest in a new stand-alone company that doesn’t involve CanWest’s newspaper division, which is itself for sale for C$950 million (the amount they are owed). Based on this investment, restructured CanWest has an implied equity value of C$475 million. Shaw could add another 15 percent to its initial 20 percent stake if some of CanWest’s creditors opt for cash in exchange for their Class A voting shares in the new company. It is expected that the Shaw-CanWest restructuring will not be completed before this coming August. CanWest was started in 1974 when the CRTCgranted a TV license to Israel “Izzy” Aspen in Winnipeg. By the year 2000, CanWest TV stations covered the whole of Canada, plus the company owned 50.1 percent of Australia’s Ten Network, which was sold last year for C$634 million. Earlier, CanWest had sold its 20 percent stake in four radio stations in Turkey. C$95 million (which for a C$10 billion company is considered a “bargain” on Bay Street — the Canadian equivalent of Wall Street), will make CanWest’s television business emerge from creditor protection, since Shaw is also prepared to make cash payments to CanWest creditors. But there are more than just regulatory challenges. CanWest acquired Alliance Atlantis in 2007 together with Wall Street investor Goldman Sachs for C$2.3 billion. In the deal there were 13 specialty channels (in addition to the five that CanWest already owned) for which Goldman retained 36 percent of the votes and 65 percent of the equity. CanWest is now embroiled in a legal dispute with Goldman Sachs over ownership of their specialty channels. Strangely, neither Shaw nor CanWest executives briefed Goldman about the takeover, reportedly because there was a confidentiality agreement with the financial company that facilitated the bids for CanWest. Goldman executives were “gravely concerned” that CanWest had entered into a deal without its knowledge, and for Shaw to acquire control of CanWest, Goldman had to approve it, since the 13 specialty channels are one of the key elements. Now Goldman has demanded a seat at the negotiating table, although its legal team said that the bank isn’t necessarily opposed to the deal. Besides confronting regulatory agencies and legal disputes, the Shaw strategy also includes riding out the hurdle of a competitors’ bid, since the Asper family mounted a last-minute bid to reclaim control of the media group founded by their father, Izzy Asper, who died in 2003. In order to do so, Asper’s two sons, Leonard and David, and daughter Gail have teamed up with Catalyst Capital Group, a Toronto-based private-equity fund, and Goldman Sachs. David, 52, and Gail, 50, resigned from CanWest’s board as soon as the deal with Shaw was endorsed by CanWest’s board of directors. Leonard, 46, remained the company’s CEO, a little longer, but ultimately he resigned. This latest move came as a surprise since CanWest’s broadcast assets have in the footsteps of the Comcast-NBC deal (see our cover story) and buying a controlling stake of CanWest Global Communications. Based in Winnipeg, CanWest is Canada’s largest media company and the second-largest private broadcaster. It owns Global Television Network. CanWest operates 18 specialty TV channels and has a stable of publications, including 11 big-city daily newspapers. CanWest Media Inc., the group’s TV division, filed for protection from its creditors last October, after its parent company missed interest payments on C$4 billion worth of debt. Shaw owns cable, satellite and Internet services and will soon expand into cellphones. This comes in addition to 17 specialty channels, 50 radio and three TV stations, as well as production and distribution companies such as Nelvana. The latter are grouped under Corus Entertainment, which was spun off as a separate, publicly-traded company in 1999. Last year, Corus, in which, Shaw reportedly has a large stake, declared revenues of C$788.7 million and net income losses of C$56.6 million with long-term debt of C$655 million. Officially, Shaw Communications claims not to have any stake in Corus. However, according toCorus executives, “many investors hold Corus stock through several different companies.” As for the B-share (traded on both the TSE and NYSE) stockholders, Corus doesn’t provide details. In terms of Corus’ class A voting shares, the majority are held through JR Shaw, founder of Shaw Communications. In 2009, Shaw had a net income of C$535.2million from revenue of C$3.39 billion. Investors in Shaw enjoyed nearly 18 percent annual gains and dividends from 2005 through 2009. The CanWest TV deal, worth at least Peter Bissonnette, president of Shaw Communications JR Shaw and family Officially, Shaw Communications claims not to have any stake in Corus. However, according to Corus executives, “many investors hold Corus stock through several different companies.
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