Ontario court considers Canwest control

Justice defends recent ruling on Canadian broadcaster

TORONTO -- An Ontario court is refusing to come between Goldman Sachs & Co. and U.S. bondholders as they fight for control of restructuring Canwest Global Communications Corp.

Justice Sarah Pepall of the Ontario Superior Court of Justice, who is overseeing Canwest Global's court-directed creditor protection, in an 18-page decision released Monday defended her recent ruling that cable operator Shaw Communications can eventually acquire a controlling stake in the Canadian broadcaster for $95 million over the objections of Goldman Sachs.

That court decision will open the way to an expected confrontation between Shaw, which is backed by a majority of Canwest Global's U.S. bondholders, and the U.S. investment bank as Shaw looks to tear up Canwest Global's 2007 shareholders agreement with Goldman Sachs over how their jointly-owned 13 former Alliance Atlantis channels are to be run.

"A major question continues to revolve around the (2007) CW Investments Shareholders' Agreement and the relationship between the CMI (cable channel) Entities and the (Goldman Sachs) OS parties," Justice Pepall said.

The Ontario judge acknowledged strong concerns by Goldman Sachs that the current creditor protection proceedings are designed by the U.S. bondholders "to achieve a disclaimer of the CW Investment Shareholders' Agreement and to take value away from the GS (Goldman Sachs) parties."

Goldman Sachs, in pre-hearings motions to Justice Pepall argued its majority stake in Canwest Global's 13 cable channels -- a key driver of revenue at the struggling Canadian broadcaster -- had been compromised by the meddling of the U.S. bondholders.

"Sadly, it is difficult to see this filing as anything other than perpetuation of the noteholder committee's and the company's continued efforts from the start to exclude GSCP from the process and force a fait accompli on GSCP (Goldman Sachs Capital Partners)," lawyer Kevin McElcheran, who is representing Goldman Sachs, said in a February 13 letter to Justice Pepall before she considered and ultimately approved Shaw's controlling stake bid.

Canwest Global last October moved shares from its joint venture with Goldman Sachs to its own holding company, Canwest Media, as it negotiated with U.S. bondholders and other senior lenders just before the debt-laden broadcaster filed for creditor protection.

As part of its 2007 shareholders agreement with Canwest Global, Goldman Sachs was to either see its stake in the 13 cable channels bought out in 2011, or be put up for sale on the open market.

Shaw renegotiating the terms of the 2007 shareholders agreement is seen as a bid to reduce the favorable terms offered Goldman Sachs in return for largely financing Canwest Global's purchase of the 13 cable channels.

Despite a looming showdown, Justice Pepall urged both Shaw and Goldman Sachs to sort their commercial differences out between them.

"I continue to be of the view that a commercial and negotiated resolution of that issue is in the best interests of all concerned ... The parties must now move forward and have a reasonable dialogue," she wrote in her March 1 decision.
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