Canada's largest media empire has taken its first step toward a historic breakup, as debt-laden CanWest Global Communications Corp. sought court protection from creditors to shelter some of its most crucial assets.
It was a move the company's chief executive officer, Leonard Asper, tried desperately to avoid over the past year, agonizing in private that the business founded by his late father, Izzy Asper, 35 years ago would be forever tainted by the stigma of a filing aimed at staving off bankruptcy.
The restructuring, which includes the National Post newspaper and the Global Television network, will now lead to what would be the biggest sale of media assets the country has ever seen, including the potential selloff of a national newspaper chain and the auction of a major television network.
This is the first step in the breakup of CanWest as a media empire as we know it. — Chris Diceman, analyst with DBRS Ltd.
A sale of Global Television would be the first time a national TV network has come up for grabs in an auction in decades. It would also mark a stunning turn for a Canadian network that handily dominated the ratings during the 90s with shows such as Seinfeld and Friends, pulling in advertising dollars by the tens of millions in a good week.
The major metropolitan newspapers that are likely to change hands include the National Post, Ottawa Citizen, Montreal Gazette, Calgary Herald and Vancouver Sun, titles that have formed the backbone of some of Canada's most famous media proprietorships, from the Southam family to Hollinger Inc. Many of them are the biggest daily newspapers in their markets.
“This is a difficult day,” Leonard Asper said in a telephone interview. “I'm most concerned about the impact on some employees. It will be minimal but there will be an impact. I regret that. I don't feel great about that.”
How the pieces settle will be determined in the next four to six months, and will also decide Mr. Asper's future at the helm of the company. His family's role in the business also hangs in the balance.
In recent months, Mr. Asper has scrambled to preserve what remains of the family's personal stake in CanWest as three powerful hedge funds began to exert ever-greater control over the company's future, pushing it toward a restructuring.
After months of negotiations with the hedge funds and other lenders in a bid to find a different solution, two senior executives with CanWest appeared in a Toronto courtroom yesterday and declared the company insolvent. Its debt, which reached $4-billion earlier this year, was unmanageable amid the economic downturn, CanWest lawyer Richard Leipsic told an Ontario judge.
CanWest Media Inc., a division of the parent company, will now restructure under the Companies' Creditors Arrangement Act, letting it continue operating while the court oversees talks that will forgive much of the outstanding debt.
In exchange for the money they are owed, the three hedge funds, led by Toronto-based West Face Capital, will assume majority ownership in the company, while common shareholders will be reduced to about 2.3 per cent.
Leonard Asper
Mr. Asper said the decision to file for court protection won't result in significant layoffs. However, employee severance and other payouts could be impacted by the restructuring talks. Along with the Global Television network, CanWest owns 17 cable television channels that include HGTV and the Food Network.
“This is the first step in the breakup of CanWest as a media empire as we know it,” said Chris Diceman, an analyst with DBRS Ltd., a bond-rating agency that has watched CanWest closely. “The two big pieces – television and newspaper – are moving in two different directions.”
