CanWest draws four potential bidders by Andrew Willis

Jan 12, 2010

Corus, Shaw, Fairfax and Pattison said to be interested in national media company's specialty, conventional networks

Source: Globe and Mail

Four potential suitors are weighing a hefty investment in CanWest Global Communications Corp., (CGS-X0.06-0.005-7.69%) but Corus Entertainment Inc., (CJR.B-T19.56-0.15-0.76%) Shaw Communications Inc., (SJR.B-T21.050.241.15%) Fairfax Financial Holdings Ltd. (FFH-T396.001.100.28%) and Jim Pattison Group all face considerable obstacles to cutting a deal with the owner of specialty and conventional television networks.

CanWest has spent the past three months searching for an investor willing put up to $65-million into the company, currently under court protection from its creditors, as part of a larger restructuring aimed at getting the media firm back on its feet, shorn of its crushing debt load. Investment banking sources say CanWest's financial advisers at RBC Dominion Securities Inc. settled on four potential bidders last week, and are now attempting to get the best possible terms from one of them, which would then effectively control the media company.

Fairfax is allied with former Alliance Atlantis Communications Inc. chief financial officer David Lazzarato and co-founder and chief executive officer Michael MacMillan, according to investment banking sources. Winnipeg-based CanWest acquired Alliance Atlantis and its stable of specialty TV channels in 2007 as part of a $2.3-billion deal.

CanWest declined to comment Monday on an ongoing process.

RBC Dominion is running a separate auction of CanWest's newspaper holdings, not including the National Post, which are held in a different subsidiary of the parent firm, and are also under creditor protection. That process began Friday, and the initial round of contacts with bidders is expected to take seven weeks.

If Fairfax were to be invited in to the TV company, Mr. Lazzarato would be named as CanWest's CEO, sources say, while Mr. MacMillan would be an adviser to the network. Fairfax is a long-time shareholder in CanWest and the insurer took a hit on its equity investment when the media firm filed for creditor protection in October.

CanWest CEO Leonard Asper and his two siblings have offered to invest up to $15-million alongside any new investor, if needed. It is unclear if any of the potential bidders want this money, or see an ongoing role for Mr. Asper, whose father founded CanWest in the 1970s. As things stand, the filing for creditor protection all but wiped out the Asper family and the rest of CanWest's shareholders.

It is clear that any potential bidder faces numerous challenges to cutting a deal with CanWest. The company has a complex corporate structure that dates back to the Alliance Atlantis purchase, which saw Goldman Sachs Group Inc. step up as a partner in the 13-channel specialty TV division. That unit is profitable, and is not part of the creditor filing. Any transaction would also require regulatory approval from the CRTC.

“Once you agree to terms with RBC, you have to cut a deal with CanWest's bondholders, then cut a deal with Goldman, then get the whole works blessed by the CRTC,” said one lawyer working with a potential investor. “It's a daunting prospect, and I'm not sure any of these bidders have the stomach for this process.”

Corus, for example, is only interested in CanWest's specialty TV division, which includes History Television and Showcase. A financier working on the CanWest restructuring said a bid for part of the company “would be unacceptable to CanWest's biggest creditors.”

Shaw, still a regional cable play, is looking at CanWest as an opportunity to tap new revenue streams, said a source familiar with the Calgary-based company's plans. While Vancouver billionaire Jim Pattison is never to be underestimated, one lawyer familiar with the restructuring said: “Pattison is bargain shopping here, and he's going to realize there is no easy fix on conventional TV.”

A lawyer working on the restructuring said Fairfax is struggling with the concept of putting more of its money into CanWest, behind a pair of executives who, while experienced, are unwilling to commit more than a few million dollars of their own money to the company.

CanWest's bondholders include a number of Canadian and U.S. distressed debt funds, including West Face Capital in Toronto and New York-based Angelo, Gordon & Co. These funds have the firepower and expertise to complete the CanWest deal on their own, if RBC Dominion cannot come up with a potential investor, or if the offers are not deemed suitable.

“You're quite likely to see the existing creditors finish off this recapitalization, and then sell the company,” said one lawyer working on the CanWest restructuring, which involves more than 20 law firms, and has seen more than $70-million spent on restructuring fees.

In October, more than 90 groups – from private equity funds to rivals – expressed interest in combing through CanWest's books as the company and its financial advisers started looking for new funding. By December, about 20 parties had signed the stringent non-disclosure agreement needed to actually look under the hood at CanWest's television properties.

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