BCE Inc. and Astral Media Inc. are poised to announce a new takeover deal that seeks to overcome regulatory opposition with a plan to auction off a number of Astral’s English broadcast assets.
People familiar with the talks said the terms of the transaction have largely been finalized and a deal could be announced as early as Friday.
Trading in Astral shares was halted minutes before markets opened Friday morning.
“There will be an Act Two here that will be workable,” said one person familiar with the discussions.
The two Montreal media giants reignited discussions days after a planned $3-billion takeover of Astral by BCE was scuttled in mid-October by the Canadian Radio-television and Telecommunications Commission, according to sources. The CRTC objected to the proposed acquisition in part because it would have handed BCE control of more than 40 per cent of the country’s English-language television viewership.
BCE angrily denounced the decision, calling the commission “impetuous and unreliable,” and vowed to rescue the deal by any means necessary. But its first route – appealing to the federal cabinet – was met coolly in Ottawa, and it is unclear if proposed court action would have a reasonable chance of success.
The speed with which the two sides were able to resuscitate an agreement that many experts thought had been fatally wounded by the CRTC decision reflects BCE’s determination to land a major media acquisition in Quebec. The deal, one of the largest in BCE’s history, would finally give the Montreal-based company a fully national media presence.
BCE is one of a number of global telecommunications companies that are moving aggressively into the media sector to supplement dwindling revenues in traditional telephone and Internet businesses.
It is unclear which Astral assets are slated for the selling block under the new plan, but one source suggested the bulk of the properties will be English-language broadcast assets.
A source familiar with the deal said the company would likely conduct an auction to sell the various properties, but the sale would be contingent on CRTC approval. Any new deal would first need to be submitted to the commission, and would be subject to a full hearing and vetting process.
A spokesperson for Bell Media declined comment. An Astral representative could not be reached for comment.
The core challenge for BCE will be to satisfy the CRTC that the reshaped takeover plan will not give the company undue power in the television sector. The regulator’s most recent annual report found that BCE’s services accounted for 33.7 per cent of English-language viewing. Assets wholly owned by Astral have 6-per-cent viewing share, and assets that are jointly held with Corus Entertainment captured an additional 3 per cent of viewership, putting combined viewership for BCE and Astral at 42.7 per cent.
The commission’s 2008 Diversity of Voices policy says acquisitions that placed more than 35 per cent of viewership in the control of any one company would be closely scrutinized because of the possibility of a substantial lessening of competition, and those that reached a 45 per cent threshold would be rejected out of hand.
To make the new proposed deal work, Bell could take its chances in selling off its joint-venture properties, which include the Teletoon and Teletoon Retro specialty channels for kids, but that move likely would not be enough to satisfy the commission’s concerns about market concentration. Bell could also try selling off some of the English-language assets it already owns, but buyers might be wary. Even then, the CRTC might buck if BCE tried to keep The Movie Network, one of Astral’s crown jewels, since its popularity could enable the company to exercise too much power in negotiating carriage for other channels.
And English-language TV is not the only stumbling block. In rejecting BCE‘s bid last month, the CRTC also expressed concern about the concentration of power in the French-language Quebec market, which would then be dominated by two companies, Bell and Quebecor Inc.
The commission added that there were other reasons for concern. “BCE already controls numerous television and radio services, as well as a national broadcasting distribution service,” the CRTC decision said. “It is the largest Internet service provider in Canada, the second largest wireless service provider and the third largest television distributor. The acquisition of Astral Media’s services would have created a situation where a company of BCE’s size and scale would be able to exert its market power unfairly and hinder healthy competition.”
In addition to its television assets, Astral has over 80 radio stations and more than 9,500 out-of-home advertising placements in Ontario, Quebec, and British Columbia.
The current agreement between the two companies, which runs until Dec. 16 and can be extended until Jan. 15, 2013, calls for Bell to pay a break fee of $150-million to Astral if it is unable to complete the acquisition.
Astral’s stock has climbed nearly 2 per cent in busy trading on the Toronto Stock Exchange this week, closing up 47 cents on Thursday at $42.26. BCE’s stock closed down 50 cents at to $41.38