CanWest may need to raise Alliance stake

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TORONTO -- Canada's TV watchdog on Tuesday hinted it may ask domestic broadcaster CanWest Global Communications Corp. to raise its stake in Alliance Atlantis Communications to at least 50% in order to conform to current foreign ownership restrictions.

As public hearings into the takeover of Alliance Atlantis by CanWest Global and equity partner Goldman Sachs & Co. wrapped up, Canada's top regulator asked the broadcaster how much new equity in Alliance Atlantis would be required to make CanWest Global the deal's majority investor.

CanWest Global CEO Leonard Asper told the Canadian Radio-television and Telecommunications that CAN$110 million ($100 million) would get this company to 50% ownership, but to do so would cause undue financial strain.

"We structured this transaction so we would not have to bet the farm. If they want to define betting the farm, that would take us certainly close to that rather intangible statement," Asper told CRTC chairman Konrad von Finckenstein.

During two days of hearings into the proposed deal, CRTC commissioners expressed concern that CanWest proposed to retain a 64% voting interest in a new broadcast joint venture comprising Global Television and Alliance Atlantis' cable channels, despite the fact that takeover partner Goldman Sachs is financing most of the CAN$1.4 billion ($1.37 billion) takeover price.

Current Canadian law bars foreign companies from controlling domestic media assets.

CanWest Global has proposed an initial investment of $262.3 million for a 36% stake in the Global Television and Alliance Atlantis' specialty channels.

That would leave Goldman Sachs to pick up the rest of the tab for Alliance Atlantis' TV channels, with CAN$480.8 million ($457 million) of its own money and another CAN$765 million ($728.6 million) in bank financing and senior notes.

Gerry Cardinale, managing director of GS Capital Partners, Goldman Sachs' private equity arm, on Monday told CRTC commissioners that the U.S. investment bank will remain a passive investor in Alliance Atlantis and allow CanWest Global to control its destiny.

But von Finckenstein said he was troubled by "restrictive vetoes" that Goldman Sachs would maintain over certain areas of the combined Global Television and Alliance Atlantis broadcast business as the lead investor.

The CRTC commissioners also asked Asper to weigh the possible consequences that could result if the regulator decided to block the Alliance Atlantis takeover.

"Not having the Alliance Atlantis business will accelerate the ratings decline on our conventional stations," Asper answered. "I think we would have to continue to look at our cost base and it would probably accelerate any further cost cuts," he added.

The CRTC is expected to render a decision by the end of the year.

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