Source: Ottawa Citizen

TORONTO — Goldman Sachs has launched a legal battle against Canwest Global Communications Corp. to shield their joint specialty-TV assets and protect the two firms' partnership from Canwest's creditor protection proceedings.

In documents filed with the Ontario Superior Court of Justice Monday, Gerald Cardinale, managing director at the Wall Street giant, charged that Canwest — bowing to demands from a group of creditors at its main holding company, Canwest Media Inc. — has attempted to move the profitable assets into the filing by dissolving the subsidiary, automatically delivering the shares in the unit to CMI, the parent.

John Douglas, vice-president of public affairs at Canwest, said: "We're in receipt of the documentation and we're reviewing it. We do not believe that any of the charges have any merit, and we will demonstrate that as appropriate in the court process."

Goldman wants the subsidiary 4414616 Canada Inc. — which holds its investment in Canwest Investments Co., the joint entity that houses the 131channels the two companies acquired from Alliance Atlantis in 2007 — restored.

The manoeuvre was "fraudulent," "oppressive" and "unfairly prejudicial," Goldman alleged, because it violated the shareholder agreement it signed with Canwest. As well, Canwest moved to dissolve the subsidiary and have CMI obtain the shares in the joint venture before it filed for protection under the Companies' Creditors Arrangement Act on Oct. 6 and without any notification to Goldman, the investment bank charged.

"We expected that before any insolvency filing, Canwest would advise us if and how (Goldman) would be affected and how the specialty-TV business figured into the plans of the restructured Canwest," Cardinale wrote.

The Wall Street investment banker also said he believes the ad hoc committee of noteholders within CMI, which includes U.S.-based vulture funds Golden Tree and Angelo Gordon, have been in control of Canwest since May.

CMI, which holds the Global TV Network and until last week the National Post newspaper, defaulted on certain loan covenants in March, setting in motion negotiations with its creditors that led to the CCAA filing last month.

In Monday's motion, Goldman said it had numerous conversations with Canwest senior management in that time frame and was told repeatedly that the company was prohibited from discussing the negotiations Canwest was having with the committee.

"Instead, it appears that the restructuring was negotiated in secret and with the express intentions of keeping (Goldman) in the dark."

The term sheet of the restructuring required Goldman's participation, Cardinale said.

Goldman is asking the court to restore the specialty-TV channel holding company and honour the shareholder agreement the investment bank holds with Canwest, which would in effect protect the assets. They include profitable channels such as The Food Network and Showcase. The U.S. bank also wants provisions designed to ensure a minimum return for Goldman to be honoured.

Canwest and the New York investment bank signed a shareholders' agreement in August 2007 giving Goldman a 64.67 per cent stake in the specialty-TV unit. Canwest holds 35.33 per cent but has voting control of 66.67 per cent, compared with Goldman's 33.33 per cent.

The shareholder agreement signed by Canwest and Goldman, which was reviewed and accepted by the CRTC, included contractual rights that allow Canwest to buy out Goldman's stake in instalments starting in 2011 through to 2013. If the Winnipeg-based media giant is not able to buy out Goldman, the investment bank can sell its stake.

According to the court filing Monday, Goldman says it has a provision in the shareholder agreement that allows the Wall Street firm to sell the specialty channels in the event of an insolvency at Canwest.

© Ottawa Citizen