TORONTO – A deal that had to happen from a CanWest point of view came together quickly over the holidays, say the principals.
After market closing Wednesday, CanWest Global Communications and GS Capital Partners, a private equity affiliate of Goldman Sachs & Co., announced they have entered into an agreement to buy Alliance Atlantis Communications for $53 per share in cash for an aggregate price of approximately $2.3 billion.
The deal fixes a long-term gap in CanWest’s portfolio which has been light on specialty services. CanWest has a single analog service: TVtropolis (formerly Prime) and digi-nets Men TV, Mystery, Xtreme Sports, Fox Sports World Canada, Lonestar and DejaView. Alliance Atlantis has majority or 100% ownership in analog specialties Showcase, Food Network, History Television, Life (soon to be Slice), and HGTV; and digi-nets Showcase Action, Showcase Diva, BBC Kids, BBC Canada, Discovery Health, National Geographic Channel, IFC, and Fine Living. It also owns minority interests in The Score (23%), One: The Body, Mind and Spirit Channel (38%) and Scream (49%).
"Today’s transaction is consistent with CanWest’s strategy to enhance its existing television business and expand its presence in the fast growing specialty television sector," said Leonard Asper, president & CEO of CanWest. "The combined expertise of CanWest and Alliance Atlantis will enable us to produce even better Canadian content, promote it more effectively, and provide greater access to more viewers across more platforms. We are thrilled to be working with Goldman Sachs to effect this strategic transaction."
Assuming the regulatory approvals happen, the deal places CanWest "on par with our major competitor," said Asper in a conference call late Wednesday afternoon. With CTV’s acquisition of CHUM and all of its specialties and broadcast sticks, without this deal, CTV would have pulled well away, competitively, from CanWest.
Goldman Sachs will be assuming ownership of AA’s CSI franchise and its 51% stake in Movie Distribution Income Fund (although it’s expected MDI will be made whole again and GS will sell that stake).
"I believe this transaction represents great value for our shareholders," said Michael MacMillan, executive chairman of Alliance Atlantis. "The combination of CanWest’s conventional and specialty television businesses and Alliance Atlantis’ 13 specialty television channels creates an excellent foundation for future growth in both businesses."
MacMillan told the conference call the deal came together very quickly and that this price is the best one out there. The company received several proposals in December, he said. "Clearly, this was the most favourable," added MacMillan
The acquisition of Alliance Atlantis is not exactly straightforward. It’s to be carried out by way of a statutory Plan of Arrangement and will be largely funded through debt and from GS. The deal calls for CanWest to kick in $132 million, or 17% of the equity portion of the Alliance Atlantis specialties, which the companies valued at $1.5 billion (so look for CRTC benefits of around $150 million) and $644 million from GS. The rest is debt financing.
A newly formed acquisition company which will house the AA specialty services and eventually Global Television, CH and Global’s specialties, is an indirect wholly-owned subsidiary of CanWest, according to the agreement.
A CanWest-controlled company will be the controlling shareholder of Alliance Atlantis following the closing of the transaction (expected to occur by summer 2007). It is intended that a reorganization of Alliance Atlantis will take place to separate the businesses of the company as follows:
* Upon receipt of CRTC approval, Alliance Atlantis’ specialty television business and CanWest’s Canadian television business will be managed on an integrated basis by CanWest and ultimately combined
*It is intended that Alliance Atlantis’ Motion Picture Distribution business will be controlled by a Canadian partner of GS Capital Partners
*It is intended that GS Capital Partners will own 100% of Alliance Atlantis’ financial interest in the highly successful CSI franchise. As part of this new relationship with Goldman Sachs, CBS will assume international distribution of CSI, CSI: Miami and CSI: NY.
The formal combination of the broadcast businesses will occur sometime in 2011. The equity of each of CanWest and GS Capital Partners in the combined entity will be determined by the EBITDA of all broadcast assets of AA and CanWest at that time. There are a variety of customary liquidity mechanisms that will be available to the parties following the combination.
That "should" leave CanWest with over 50% control of the entity, come 2011, said Asper.
– Greg O’Brien
