CanWest, Goldman to buy Alliance

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Related story: Big day at CanWest includes big profits


TORONTO -- In a deal likely to challenge foreign ownership rules here, Canadian broadcaster CanWest Global Communications Corp. and partner Goldman Sachs Capital Partners on Wednesday unveiled a CAN$2.3 billion ($1.96 billion) takeover agreement with rival broadcaster Alliance Atlantis Communications Inc.

The offer, which will see Alliance Atlantis shareholders receive CAN$53.00 ($45.30) a share, will be largely financed by the Goldman Sachs private equity arm and will hand the U.S. firm a half-stake in the popular "CSI" franchise.

"The combined expertise of CanWest and Alliance Atlantis will enable us to produce even better Canadian content, promote it more effectively, and provide greater access to more viewers across more platforms," CanWest Global CEO Leonard Asper told analysts during a conference call.

Asper received backing from Michael MacMillan, executive chairman of Alliance Atlantis and the company's controlling shareholder.

"The combination of CanWest's conventional and specialty television businesses and Alliance Atlantis' 13 specialty television channels creates an excellent foundation for future growth in both businesses," said MacMillan, who will be cashing out the broadcaster he co-founded in 1978.

"We are looking forward to this relationship with CanWest to support the expansion of its television business and to facilitate the combination of two great Canadian media companies," Gerry Cardinale, managing director of Goldman Sachs Capital Partners, said in a statement.

As part of the proposed deal, Winnipeg, Manitoba-based CanWest Global will contribute an initial CAN$132 million ($113 million) for an initial 17% stake in a new company that will control Alliance Atlantis' 13 cable channels and CanWest Global's two Canadian conventional TV networks.

Under arrangements yet to be finalized, CanWest Global will manage the new broadcast business "on an integrated basis," and CanWest Global and Alliance Atlantis will eventually combine their TV businesses in 2011.

At that time, the equity ownership of the combined entity will be determined by the respective EBITDA contributions of the CanWest Global and Alliance Atlantis TV businesses.

Asper said that he expects CanWest Global to have a roughly 50% stake in the combined business in 2011, with an option to buy out Goldman Sachs after the businesses are fully integrated.

Until then, CanWest Global can invest up to $200 million in the aligned TV businesses. That leaves Goldman Sachs on the hook for the majority of the initial CAN$2.3 billion purchase price.

A scenario in which a bid for a culturally-sensitive Canadian broadcaster is covered by a U.S. equity firm is certain to challenge existing Canadian laws that bar foreign companies from owning more than a 20% operating stake in domesic content carriers.

Asper said that CanWest Global will retain voting and management control of the Canadian broadcast assets, with Alliance Atlantis' 13 cable channels operating as "an indirect wholly-owned subsidiary of CanWest Global" until 2011.

That arrangement is designed to satisfy concerns about foreign control of the Canadian airwaves from Ottawa or the Canadian Radio-television and Telecommunications Commission, the country's broadcast regulator, which will scrutinize the offer.

"We've cleared this with a number of legal counsel and are satisfied this will satisfy Canadian law," Asper said.

For its part, Goldman Sachs will have representatives on the board of the proposed Canadian broadcast business and shareholder protections.

As part of a further reorganization of Alliance Atlantis, its movie distribution arm will be similarly controlled by a still-to-be-determined Canadian partner of Goldman Sachs.

Goldman Sachs will own 100% of Alliance Atlantis' 50% stake in the "CSI" franchise, which does not require CRTC approval.

CBS Prods., which owns the other 50% stake in "CSI: Crime Scene Investigation," "CSI: Miami" and "CSI: New York," will take over from Alliance Atlantis as international distributor of the franchise as part of an arrangement with Goldman Sachs.
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