Goldman Sachs & Co. is attempting to undermine the power of U.S. distressed debt funds that control CanWest Global Communications Corp., while these same creditors weigh CEO Leonard Asper's fate at the company his father founded.
Goldman, co-owner of CanWest's stable of specialty television networks that are the company's crown jewels, wants the media company's executives to stop taking orders from a handful of foreign funds and make building its TV networks a priority, according to court documents filed on Friday.
This increasingly bitter battle highlights the key role that New York vulture funds and a New York-based investment bank play in a Canadian media company that faces federal restrictions on foreign ownership.
Goldman is trying to sidestep CanWest's creditors by opening direct restructuring talks with Mr. Asper and Hap Stephen, the company's court-appointed chief restructuring officer. To date, CanWest's hedge fund bondholders have not held substantive talks with the investment bank, but have taken steps to undermine Goldman's position.
"We think it is plainly wrong and short sighted for the company to acquiesce to the short-term objectives and over-reaching objectives of distressed debt traders when something as significant as the restructuring of an important Canadian cultural and corporate institution like CanWest is at stake," said Goldman managing director Gerry Cardinale last week in a personal letter to Mr. Stephen contained in the most recent court filing.
"Keeping us in the dark about the company's restructuring plans is not a practical way to deal with the restructuring," Mr. Cardinale added.
There was no reply from Mr. Stephen, said a restructuring expert hired to help rebuild CanWest's balance sheet. However, as this struggle played out, Goldman's lawyers received a letter from CanWest counsel at Olser Hoskin & Harcourt that said: "Goldman's approach is calculated to cause the maximum possible distraction and inconvenience to CanWest."
As distressed debt funds fight Goldman for better terms on CW Media, they are also waiting for CanWest to attract up to $65-million in funding from new Canadian investors to complete the restructuring: Mr. Asper offered to put up $15-million of this sum. There are three members of the Asper family at CanWest - all children of founder Israel (Izzy) Asper.
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Mr. Asper is keen to rebuild a business reputation left in tatters by the company's filing for creditor protection, sources say. He has hired new advisers, including retired RBC Dominion Securities CEO Charles (Chuck) Winograd, to help retain control.
"Leonard is effectively offering $15-million to retain control of a company that has a $4-billion enterprise value. That's difficult for creditors to swallow," said one lawyer working with lenders.
There are 21 different law firms with roles in the CanWest restructuring. Mr. Asper continues to be CEO, sources say, because creditors don't want to trigger the regulatory scrutiny that would come with a switch in leadership at a time when the company's debt is held by New York funds such as Angelo Gordon & Co. and GoldenTree Asset Management.
A change in control could also leave CanWest on the hook for an estimated $50-million in payments to the Canada Media Fund, a part of the federal Deparment of Canadian Heritage. CRTC has authority to determine if in fact a change of control takes place.
"Leonard's only cards in this game are his Canadian citizenship and his view that his departure triggers change in control fees. Those are not strong cards," said one source close to creditors. Several sources say that while Mr. Asper is well-liked, and attracts a degree of sympathy, he is seen as far from indispensable.
RBC Dominion Securities is running the search for a new investor willing to put $50-million to $65-million into CanWest. But sources in the creditor group say outsiders may not be needed, as CanWest could easily be recapitalized by existing creditors.
"If RBC can find new money on great terms, we're all for that. But there's more than enough strength within the existing bondholders to complete this restructuring without outside help," said the lawyer for creditors, who added that Canadian distressed debt funds have been buying CanWest bonds from U.S. players, which would negate foreign-ownership concerns.
All this posturing comes after CanWest and its creditors dissolved a numbered holding company that served as a buffer between the troubled parent and its specialty channel offspring, known as CW Media. This took place without Goldman's knowledge, just before CanWest filed for creditor protection in October with total debts of $3.9-billion, and the move gives creditors a stronger claim on CW Media.
Goldman is asking Ontario Superior Court Judge Sarah Pepall to resurrect the numbered company and safeguard its stake in CW Media. Canadian judges enjoy considerable flexibility when overseeing restructurings. CanWest's specialty channel unit is profitable, and not part of the court-supervised restructuring. Goldman is also attacking the diversion of $426-million to CanWest's bondholders following the sale of the company's Australian television holdings, just before the filing for creditor protection. No date has been set for a hearing on these requests.
A spokesman for CanWest said the company has reviewed Goldman's latest court filing and said: "CanWest will deal with all of these issues as part of the court process."
Astral Media Inc. makes no secret of its interest in acquiring the specialty television arm of CanWest Global Communications Corp. if the lucrative, 18-channel network comes up for sale.
While rivals play down their desire to pick up pieces of troubled CanWest, Astral chief executive officer Ian Greenberg said in a recent conference call with analysts that if the division was to "become available, it certainly is of interest to us. They certainly strategically fit into our plans." While Astral, which owns 20 specialty TV channels and 82 radio stations, would take a run at CanWest specialty offerings that include History Television and Showcase, sources say Mr. Greenberg would steer clear of CanWest's money-losing conventional TV network, Global. Astral contemplates selling shares and borrowing from banks to pay for the TV unit, Mr. Greenberg said during his latest quarterly earnings call. Andrew WillisReport Typo/Error
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