Goldman Sachs makes Alliance case

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TORONTO -- Canada's TV regulator on Monday heard Goldman Sachs and Co. explain that it will not gain undue control over the Canadian airwaves if a takeover of Alliance Atlantis Communications by rival CanWest Global Communications Corp. gets the go-ahead.

"Goldman Sachs sees itself as a financial backer, not a strategic investor, in Alliance Atlantis," Gerry Cardinale, managing director of GS Capital Partners, Goldman Sachs's private equity arm, told the Canadian Radio-television and Telecommunications Commission.

CRTC commissioners probed CanWest and Goldman Sachs executives during the public hearings over who will wield control over Alliance Atlantis' 13 cable channels when they are combined with CanWest Global's Global Television network.

The regulators raised flags over Goldman Sachs' claim that it could be a passive investor when it has put up the bulk of financing for the takeover deal.

"This transaction has been designed so that CanWest is in control," Cardinale told the CRTC commissioners. Current Canadian foreign ownership rules bar foreign companies from controlling domestic broadcast assets.

Testing those foreign ownership rules, the shareholders agreement for the Alliance Atlantis takeover deal will see CanWest Global retain a 64% voting interest in a new broadcast joint venture comprising Global Television and Alliance Atlantis' cable channels, despite Goldman Sachs financing most of the CAN$2.3 billion takeover price.

CRTC chair Konrad von Finckenstein expressed skepticism that Goldman Sachs would remain a passive investor and not extend its long arm to help run Alliance Atlantis' cable channels.

"This is complicated and difficult to appreciate," von Finckenstein said of a proposed shareholders agreement between CanWest Global and Goldman Sachs.

"I am not trying to be difficult. I want you to succeed. But the explanation I am hearing doesn't give me much comfort," he said at one point.

Von Finckenstein pointed to a "reporting committee" outlined in the shareholders agreement that would include Goldman Sachs representatives. He said the committee, separate from the formal board of directors, would allow Goldman Sachs to exercise influence and control over the Canadian broadcaster.

"It's another way that Goldman Sachs has access to what's going on in the ... business," Finckenstein said.

The CRTC chair also objected to Goldman Sachs' retaining a veto over how the Global/Alliance Atlantis broadcast business is run in the year before CanWest and the U.S. investment bank divide the business up in 2011.

"When you look at that veto clause, that last year prior to merger, they really have a major say in the business," von Finckenstein said.

Goldman Sachs' Cardinale defended the veto clause and other measures in the shareholders agreement as simple minority investor protections that allowed him to exercise his fiduciary obligation to his own shareholders.

Von Finckenstein also wrestled with CanWest and Goldman Sachs over how to define the "normal course of business" over which the U.S. bank would have no say, and what could prove "material" enough for Goldman Sachs to intervene to protect its lender interests.

Tom Strike, executive vp of CanWest Global, told von Finckenstein that "you'll know it" when something happened to be material, a definition that did not satisfy the regulator.

"As a regulator, that's of little help to me. There's no definition of materiality," he complained.

As the hearings wrapped Monday, von Finckestein told CanWest and Goldman Sachs executives to "take another look at" their proposed shareholders agreement.

In particular, von Finckenstein urged both parties to "put flesh" on their definition of materiality, and reword "very restrictive" vetoes that Goldman Sachs now has over how the Global/Alliance Atlantis entity will be run.

The CRTC hearings will resume Tuesday and are expected to conclude Wednesday.

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