Shaw Communications Inc.'s SJR.B-T acquisition of a controlling stake in CanWest Global Communications Corp. CGS-X provides the Calgary-based cable company with a bevy of media assets that will help it compete with rivals such as Rogers Communications Inc. RCI.B-T and Quebecor Inc. QBR.A-T“Jim knows a good deal when he sees one,” says telecom analyst Iain Grant of the SeaBoard Group consultancy, referring to Jim Shaw, the company's chief executive and vice-chairman.
“But he's also looking at, ‘What's the future of the cable company?' It's no longer broadcast distribution. Shaw has very much got an eye towards content, as well.”
As industries converge, it is important for telecom companies to be more than just “dumb pipes,” as the saying goes. It is a model that has proved profitable for Quebecor Inc., which owns vast media, broadband Internet, cable and phone assets in its home province of Quebec, and Rogers, which has much of the same in Ontario.
“This puts Shaw on an equal footing with Quebecor and Rogers and further eclipses Telus T-T ,” Mr. Grant said.
Kaan Yigit, president of Toronto-based Solutions Research Group, said the Shaw-CanWest deal was the “most significant transaction in the media and communications business in Canada in easily a decade or more.”
For Shaw, which eventually plans to launch wireless phone service, control of CanWest's media assets allows it to spread breaking news content across a variety of platforms, including smart phones, Mr. Grant said.
Like Shaw, Quebecor's Vidéotron Ltée also plans to launch wireless services and has said it will leverage its media assets across multiple platforms. Both cable companies can also benefit from offering wireless service as part of a “bundle” with its other services. This “one-stop-shop” philosophy makes them a big threat both to traditional telecom providers and media companies with no distribution channels.
Mr. Grant adds, however, that Mr. Shaw seemed in no rush to buy CanWest, instead, waiting until the assets were devalued by the creditor protection process.
“You never know what to expect with Mr. Shaw,” Mr. Grant said. “But he certainly recognizes a bargain.”
Jim Shaw
Of course, Shaw already has access to content production through its links with Corus Entertainment Inc. But control of CanWest's Global Television and highly lucrative specialty channels like HGTV, Food, and History, make it an indisputable powerhouse, Mr. Yigit said.
“This transaction makes Shaw arguably the top player in TV entertainment in Canada, provides access beyond its western footprint, and strengthens its position in major markets in the West,” Mr. Yigit said.
Analysts were craving financial details of the deal early on Friday, but they were hesitant about being too optimistic, given that the move extends Shaw well beyond its core competencies. There was also some concern that the deal may distract the company from focusing on its wireless efforts, on which the company said it would take “initial steps” in 2010, but would not launch until a later date.
“I would have preferred them to concentrate more on wireless and get that division established, before diversifying out of their core business,” said Maher Yaghi of Desjardins Securities in Montreal. “While this is not totally unexpected, it's not exactly what I would have thought that the company would do with their cash.”
Phillip Huang, an analyst at UBS Securities, said in a note Friday morning that investors should tread cautiously, especially since the next year will be a tumultuous one for companies in Canada's telecom sector.
“The industry's investments in media assets have historically not generated stellar returns,” Mr. Huang writes. “As we had noted previously, we believe the investment in media assets, the inherent uncertainties related to the impact of launching a wireless business, and intensifying competition with Telus will increase Shaw's risk profile in 2010.”
Greg MacDonald, a telecom and cable analyst at National Bank Financial, said that while there were few financial details, the deal appears to have given Shaw “significant control” with “relatively little investment.”
Although Mr. MacDonald said he has always been skeptical of synergies between content-producers and content-conduits, from a financials perspective, he did say that “content is becoming a more important way of differentiating a product.”
He also conceded that, “I haven't seen this company make a lot of stupid investments.”
