Source : National Post

Mid-sized media companies and those hoping to sell shares to the public are likely to take the hardest hits from new regulations unveiled this week by The Canadian Radio-television and Telecommunications Commission that limit media consolidation and cross-ownership of TV, radio and newspapers.

Torstar Corp. (TSb/TSX), Corus Entertainment Inc. (CJRb/TSX), and privately-held CTVglobemedia, were named as potential victims of the new policy in an informal survey of analysts.

Indeed, according to two analysts who did not want to be identified, any possible initial public offering of CTVglobemedia would likely not come with as rich a valuation as it might have achieved a year ago, at the height of the last round of media consolidation.

"It looks like CTVglobemedia missed the top to go public, " one of the analysts said.

He added that CTVglobemedia's owners, including major shareholder Woodbridge Co. Ltd., owned by Toronto's Thomson family, "can't be too happy these new rules limit CTVglobemedia from growing." CTVglobemedia's shareholders, which also include Torstar and the Ontario Teachers' Pension Plan, have contemplated an initial public offering as an exit strategy and a source of new funds for the company.

Another analyst said multiples assigned to new deals will be lower than a wave of transactions over the past two years. CTVglobemedia's $1.7-billion purchase of CHUM and Astral Media Inc.'s (ACMb/TSX) $1.08-billion vault to Canada's biggest radio operator with the purchase of Standard Broadcasting were done at multiples of around 13 times earnings before interest, taxes, depreciation and amortization.

Canwest Global Communications Corp.'s (CGS/ TSX) $2.3-billion purchase of specialty TV broadcaster Alliance Atlantis Communications Inc. in January of 2007, with partner Goldman Sachs Group Inc., was made at an even higher earnings multiple.

The new merger rules could also affect Torstar, which is facing a strike as early as today at its flagship newspaper The Toronto Star, in other ways. "Cross-ownership rules significantly limit the number of potential buyers for The Toronto Star," said UBS analyst Eric Mencke in a note to clients. He indicated that some industry watchers contemplated a bid at some point from CTVglobemedia, which already owns TV and recently-acquired radio stations in Toronto.

Another potential buyer of Torstar, Rogers Communications Inc. (RCIb/TSX), would also be barred from purchasing Torstar. Under the new rules, media companies will be allowed to own only two types of media in a single market. Rogers already owns radio stations in Toronto and recently acquired a local Toronto Citytv station from CTVglobemedia.

If CTVglobemedia or Rogers were to purchase Torstar without selling any of their other assets, they would have a tough time with regulators when they appeared to renew TV and radio licences. That's because they would own a newspaper, a radio station and a TV station in the Toronto market.

Another company potentially hurt by that cap and other new media ownership restrictions is Corus Entertainment Inc. One obvious suitor for Corus in a few years' time would have been Canwest, but ownership of TV stations and newspapers in major markets such as Montreal, Vancouver and Calgary would render such a transaction impossible, without asset sales, Carl Bayard, an analyst at Genuity Capital Markets in Montreal, wrote in a note to clients.

Restrictions that prohibit a single TV distribution company from dominating a local market also would mean that cable and satellite TV operator Shaw Communications Inc. (SJRa/TSX) would be unable to buy satellite TV rival Bell ExpressVu. However, Bell Canada Inc., ExpressVu's owner, could buy Star Choice under the new rules, because Shaw and Rogers would remain competitors of the combined satellite TV distributor across the country.

© National Post

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