MONTREAL – In its third major content acquisition in a little over 18 months, BCE Inc. (Bell) announced today the purchase of Astral Media Inc. and all its assets for $3.38 billion. If approved, the deal would dramatically boost Bell’s French language TV viewership in Quebec from 6% to 32%, placing it within striking distance of Quebecor, which reaches about 35% of viewers. But at least one market analyst has questioned the value of the deal and believes Bell should have invested the money in its broadband network.
"Bell is gaining a well-seasoned national Astral management team, dramatically expanding our French-language content, and more than levelling the playing field with our largest broadcast media competitor in Québec,” said George Cope, president and CEO of BCE Inc. and Bell Canada in a release.
Ian Greenberg, Astral president and CEO said that after 15 years as commercial partners both companies know each other well and share many important values. Astral, one of the last independent media companies, celebrated its 50th anniversary last year. It was founded in 1961 by brothers Harold, Harvey, Sidney, and Ian Greenberg, and today employs about 2,800 staff nationwide (about half are based in Quebec).
“The fit between our two companies is a natural and I look forward to seeing our brands become even stronger as part of the Bell family," added Greenberg.
In the deal, Bell acquires all of the issued and outstanding shares of Montréal-based Astral and its leading specialty and pay television channels, radio stations, digital media properties and out-of-home advertising platforms. Bell, already the country’s largest telecommunications company, would add 22 specialty television channels (13 of which are French-language, along with HBO Canada, the Movie Network and the Family Channel), and 84 commercial radio stations including 29 in Quebec. Astral’s pay-television business alone generates profit of about $70-million annually. The deal still requires the approval of the CRTC and the federal Competition Bureau.
Bell’s takeover builds on its $1.3-billion acquisition of CTV in September 2010, and its decision last December to team up with rival Rogers Communications on a $1.07-billion deal for Maple Leaf Sports & Entertainment. Today’s transaction, which has been in the works for months, is valued at $50 per share, a 40% premium over the $36.25 level that Astral Media shares closed at on the TSX on Thursday. Bell will fund 75% of the deal with cash and issue common stock for the remaining $750-million.
Beyond boosting its footprint in Quebec, Bell contends the purchase will substantially reduce its costs to purchase content, while enhancing its ability to move content to multiple platforms and screens, including its Mobile TV service. In particular, it noted in a statement that “Astral products currently represent Bell’s largest single content cost.”
"This transaction further accelerates Bell's strategy to deliver leading content like Astral's across our world-leading networks to all the broadband screens — TV, smartphone, tablet or computer — that our customers may choose," added Cope.
But Dvai Ghose, managing director and head of research with Canaccord Genuity, cautions that Astral’s digital specialty channels are facing increased competition from OTT services.
“We wonder if Astral's digital speciality channels and Movie Network will suffer loss of share to OTT. While Astral has historically enjoyed a monopoly with The Movie Network in Central and Eastern Canada, we believe that it could slowly lose share to OTT providers like Apple TV, Netflix, etc. We note that Astral lost 43,000 net Movie Network customers in FH2/11 (ending August). We also expect OTT providers to increase content costs,” he writes in his Daily Letter.
Ghose maintains that the $3.4 billion would have been better spent on ramping up Bell’s Fibe TV service.
“Bell’s biggest challenge is that it only covered 31% of homes passed with IPTV at the end of 2011 versus 65% for Telus. Consequently, Bell’s TV and ADSL growth and line loss has been significantly worse than Telus’. While Bell may believe that beefing up Quebec content will help against Videotron, in our view, spending $3.4 billion on broadband instead may have been more effective.”
Meanwhile Moody's Investors Service says the acquisition of Astral Media has had no ratings impact on Bell.
The deal though has already raised regulatory concerns about the concentration of radio assets that it provides Bell, especially in English-language radio. With Astral’s assets the telecommunications giant would own seven radio stations in Vancouver, six in both Toronto and Ottawa and four in Winnipeg and Calgary. Similar large takeovers in the past have seen broadcasters forced to sell off some assets to gain CRTC approval.
But rule changes being considered by the regulator, such as allowing ownership of more FM stations in a given market, may enable Bell to hold on to more stations than would have been previously possible. Bell must pay a $150-million break fee to Astral in the event CRTC does not approve the transaction.
At a conference call in Montreal outlining the deal, Astral’s Greenberg confided that it had other suitors, but chose Bell “because we thought it was the best fit, particularly for our people.”
Cope during the conference call said the deal represents a “significant growth opportunity because the content asset will now begin to distribute its products over the next two to three years over four screens not the traditional one. As you know, at BCE we've been quite passionate about that as a future direction.”
Cope maintained that it considers all of Astral’s properties to be core assets for Bell including Astral’s outdoor media unit.
He added that it was an historic day for Bell and Astral and noted that for the first time ever “wireless TV and media will now represent the majority of Bell Canada's revenue.”
