Source : Globe & Mail

Astral, Corus face shrinking acquisition prospects if blockbuster deal is successful

The potential sale of Alliance Atlantis Communications Inc. to CanWest Global Communications Corp. has cast a cloud over the growth prospects of two rival broadcasters, and could pressure them to do their own deal in order to keep pace in Canada's consolidating media environment, observers suggest.

Astral Media Inc. and Corus Entertainment Inc. are each vying for Alliance's stable of 13 specialty television channels, including Showcase and HGTV, as part of a bidding process that could be finished as early as this week.

Yet sources say CanWest, along with deep-pocketed financial backer Goldman Sachs Group Inc., have been negotiating with Alliance since the summer, and are clear front-runners to acquire its broadcast assets.

The Alliance auction could be pivotal in reshaping the Canadian media landscape, given the scarcity of lucrative specialty channels up for grabs. In the summer, CTVglobemedia Inc. paid $1.4-billion to acquire CHUM Ltd., out-duelling Astral for properties such as MuchMusic and Bravo.

"Astral has already bid and lost on CHUM, so if it bids and loses on Alliance, it would probably have to look at a change in tack, maybe where it does a deal with someone more on merger terms than on acquisition terms," CIBC World Markets Inc. analyst Bob Bek said. "If CanWest wins it, I would think that Astral and Corus might decide to dance together."

Mr. Bek added that the combined company could be worth more than the sum of its parts, and might also be an attractive target in future consolidation.

"I think for both of them, there's very little left on the table for them to buy, other than each other," said another analyst who follows the media sector. "It's going to be very hard for them to grow -- there isn't a lot of M&A [opportunities] left."

The analyst suggested that if either of the firms were willing to put its broadcast assets on the block, the most likely candidate would be Corus, which is part of Shaw Communications Inc.'s operations.

"I think the Shaws [family] are a more likely seller, because it's non-core to their [cable] business."

Corus and Astral have been mentioned as possible partners for years, in part because there is little geographic overlap in operations. Corus owns specialty cable channels like YTV and has radio assets spread across the country, while Astral operates mostly in Quebec and the Maritimes. Its assets include several French-language radio stations, specialty channels and a pay-television network.

Neither side, however, has shown a willingness to sell. Since both companies are tightly controlled by families -- Corus is majority owned by the Shaws of Calgary and Astral by the Greenbergs of Montreal -- neither can be pushed into a deal.

Astral, which is flush with cash, has stated publicly it wants to expand west of its Quebec base, while Jim Shaw, chief executive officer of Shaw, said in November the family is a willing buyer of TV assets.

"The Shaw family has to decide what they want to do. Do they want to grow in media, do they want to sell media?" said Carl Bayard, an analyst at Desjardins Securities Inc.

But these opportunities are shrinking rapidly, placing greater urgency on the Alliance auction.

"The question [for Astral and Corus] is, are you creating a competitor, in addition to CTVglobemedia, that is bigger and stronger than you, by not getting this?" explained one investment banker.

That said, the investment banker is not convinced that a successful CanWest bid will force Astral and Corus to respond with their own merger. Much will depend on how well CanWest CEO Leonard Asper is able to integrate Alliance's specialty channels with his conventional broadcast assets, and whether he can wring long-term cost savings from programming and infrastructure -- all without overpaying.

It's plausible Astral might take a run at buying Standard Broadcasting Corp. Ltd., which operates profitable FM stations across Canada, if it can convince the Slaight family to sell the business. While that deal is the other potential billion-dollar transaction dangling in the Canadian broadcasting world after the Alliance sale, it would have little impact on the TV industry.

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