There's a mindset among some owners of Canadian media that assets are beachfront property.
Len Asper at CanWest Global Communications subscribes to this view. So did his father, the company's founder. CanWest's CEO sees a premier slot on the TV dial, and local newspaper monopolies, as assets that only come on the market once in a generation, properties that should be cherished.
However, storms can wash away beachfront homes. And this credit crunch has ripped into the value of Mr. Asper's family-controlled company.
With CanWest stock touching a new all-time low of 86 cents on Friday - it is changing hands at $1 late Friday, giving the company a $181-million market capitalization - it's time to ask just what real estate Mr. Asper might be forced to sacrifice to keep the rest of his properties.
The problem at CanWest is a heavy debt load - $3.7-billion - and a portfolio of advertising-driven holdings that will churn out far less cash if, as expected, a recession hits. It's worth pausing at this point to note that other iconic Canadian media companies - Standard Broadcasting, Alliance Atlantis and CHUM - were sold by entrepreneurs or family owners in the past two years at what we now know was the top of the cycle.
Not long ago, CanWest was a $15 stock, in part on expectations that Australian TV holdings would be sold and a lion's share of the debt paid down.
Obviously, that deal never materialized. And in recent months, the price of Australia's Ten network has dropped sharply - to $525-million from $1.14-billion. At this point in the cycle, even selling Australian beachfront doesn't raise enough capital to put a serious dent in CanWest debt.
Investment bankers working for rival media companies say a prolonged downturn could force Mr. Asper into previously inconceivable property sales, such as parting with both Australian holdings and its Canadian conventional television network, Global.
There's also the question of how much longer CanWest can bleed an estimated $16-million a year of earnings before interest, taxes, depreciation and amortization (or EBITDA) on the National Post daily newspaper - that forecast comes from a report Tuesday from TD Securities analyst Scott Cuthbertson. With CanWest's newspaper holdings valued at 6.5 times their EBITDA, eliminating $16-million of annual cash burn could have a material impact on the stock price.
"CanWest is highly levered with little financial flexibility," said Mr. Cutherbertson. "While it does not have significant maturities in the short term, it is arguably ill prepared to weather a prolonged economic slowdown and may find it expensive to obtain the flexibility it needs in the short term."
In a sum-of-the-parts analysis, Mr. Cuthbertson valued CanWest's newspaper holdings at $1.9-billion, its websites at $117-million, Global at $267-million, its minority position in Canadian specialty TV holdings at $100-million and the Australian network at $525-million.