Source : National Post

Goldman Sachs partner: Key is who is in charge of merged companyThe CRTC will need to uncover who has control in the CanWest/Goldman Sachs joint venture to determine whether the Alliance Atlantis purchase meets foreign ownership rules.

OTTAWA - Who is in charge is the key question the federal broadcast regulator will have to sort out when it reviews the $2.3-billion sale of Alliance Atlantis Communications Inc. to CanWest Global Communications Corp. of Winnipeg and Goldman Sachs, the icon of Wall Street.

The deal, announced yesterday, has the Canadian broadcaster teaming up with the investment bank to purchase Alliance Atlantis, 50% owner of the popular CSI franchise and operator of 13 specialty channels. The Canadian Radio-television and Telecommunications Commission will determine whether the joint venture meets the foreign ownership rules as they apply to broadcasting ventures and, more important, who has "de facto" control of the company.

"The basic test is the extent to which a non-Canadian can have voting control of the entity that has the broadcasting undertakings," said David Zitzerman, a Toronto-based entertainment lawyer at Goodmans.

A wholly owned CanWest subsidiary would become the controlling shareholder of Allianc eAtlantis. And Alliance Atlantis' assets would be reorganized as follows:

- Specialty television business and CanWest's Canadian television business would be managed by CanWest, and combined by 2011.

- A Canadian partner of Goldman would control the film-distribution business, held 51% by Alliance.

- Goldman would take ownership of the CSI stake, which is believed to be the key to the investment banker's involvement.

Canada's foreign-ownership rules, as they apply to broadcasting, limit foreigners to 20% control of the operating company, and 33.3% of the holding company --or, in essence, a combined 46.6% stake.

The equity stakes CanWest and Goldman Sachs would hold in the broadcasting company are to be determined by the operating earnings, once the broadcasting assets are combined, the companies said in a statement.

The CRTC must review the deal because a transfer of a broadcasting licence is proposed. Of interest to the CRTC will be media concentration and ownership structure -- and given the presence of a New York banker, it is the latter that will likely dominate the CRTC's proceedings.

The review begins once Can- West-Goldman files an application, after which the regulator generally takes six to nine months before issuing its ruling.

Mr. Zitzerman said the CRTC will look at whether CanWest or Goldman has "control in fact" -- a concept that deals with the relationship between the Canadian operator and the foreigner. This will be spelled out in the shareholder agreements, and it will likely give Goldman a say over normal corporate events, such as a change of business strategy or the issuance of shares.

But if the CanWest-Goldman agreement gives the New York banker control over, for instance, money spent on properties such as the specialty channels, the CRTC may raise concerns.

"When you get into those issues, then the concern is that the foreigner may have de facto control," Mr. Zitzerman said. "Everyone will be careful in trying to structure this agreement, but, at the end of the day, it has to withstand scrutiny."

Possibly working in this deal's favour is that Goldman Sachs is seen as a passive investor, and does not hold broadcasting interests elsewhere, experts added.

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