1/28/2004

Articles in related categories Mergers and acquisitions

LINE UP THE USUAL SUSPECTS, there's a Canadian media company for sale.

With Craig Media on the block, the potential suitors are, who else?, all of Canada's Big Media companies. Craig has retained RBC Dominion Securities to search for potential suitors for all or parts of the company. It won't have far to search.

According to a source, Craig Media was forced into this situation by its American partner Providence Equity Partners which invested $110 million in the company in 2024 in exchange for 19.9% ownership. "They're off-side" on certain covenants of the agreement, said the source, which has triggered Providence's demand.

While Craig and Providence are private companies and release no financial details, the fall 2024 broadcast television ad market was very soft and hurt the established Canadian broadcasters, according to their most recent quarterly reports. Add that to Toronto 1's newcomer status and its poor ratings (basically a 1 to 1.1 share in prime time) and its first fall season was likely a very painful one from a sales standpoint. Calls to Craig Media seeking comment were not immediately returned.

Although the rumored $400 million price tag for the company seems a bit rich, the suitors will still line up for a good look. One or two will buy, but probably not at that price.

Craig's assets include:
A Channel Edmonton
A Channel Calgary
A Channel Winnipeg
CKX-TV Brandon
Toronto 1
MTV Canada
MTV2
TV Land Canada

Here is the rather obvious slate of potential bidders:
Astral Media
Alliance Atlantis
CanWest Global
CHUM Limited
Corus Entertainment
CTV Inc.
Quebecor Media
Rogers Communications
Torstar Inc.

Astral, while in fine fiscal shape, is an unlikely bidder. The company is on record saying it wants to buy more radio stations and happily runs a very successful business in pay television in English Canada and both specialty and pay in Quebec. It seems unlikely that Astral would want to become a western Canadian TV broadcaster.

Alliance Atlantis bid unsuccessfully for the Toronto over the air license which went to Craig and may still be interested in a broadcast presence. However, it (and its shareholders) may be scared off by Toronto 1's poor performance in the market. Craig's digi-nets could be taken into the Alliance Atlantis specialty service fold but don't really fit into the rest of the company's existing roster of channels which are heavy on lifestyle and movies.

CanWest Global would love to have all of these additional outlets in Toronto, Calgary and Edmonton, where it already operates, but there is no way the CRTC would let it buy Craig.

A CHUM Limited purchase would make sense for the company since it would save CHUM the expensive trouble of building new stations in Alberta (the Commission has yet to issue a decision on the company's application for new Alberta stations). However, CHUM would not be allowed by the Regulator to own Toronto 1. With Citytv and Barrie's New VR, CHUM already super-serves the Toronto market. That said, if it could swing a deal with another interested party which would want Toronto 1 - say Torstar - that portion of the Commission's objection would be side-stepped. Owning the MTV and MTV2 digital specialties would make sense for CHUM but since CHUM already owns MuchMusic, MuchMoreMusic and others, would the Commission allow it to dominate the TV music market in that way?

Corus, with former CTV head John Cassaday at the helm, might want to get back into broadcasting, especially given Corus's Shaw family/western Canada roots. Corus could easily blend in the Craig specialty services in with its own and Craig's broadcast group is ready-made. However, it only recently dug itself out from under a debt mountain and it's share price may be pummeled if it tried to take on an acquisition such as this at this time.

CTV faces the same Commission opposition that CanWest would and corporate owner Bell Canada Enterprises has shown it is not interested in building on its media empire, rather it would probably like to divest when the time is right. But CTV could still try to make it work, if only to stave off the threat of another national network from CHUM.

Quebecor CEO Pierre Karl Péladeau told Broadcaster in October he would like to expand Quebecor Media beyond the borders of his home province. While it knows how to broadcast and make money in Quebec, broadcasting in the rest of Canada is a different beast and the learning curve would be a steep one for Péladeau's company. But it's nothing he and Quebecor Media wouldn't be able to handle.

Rogers would love to have the Craig assets, but the Commission has never let a cable operator control a broadcaster.

Torstar, if it still believes in the Hometown Television concept it pitched to the Commission and lost to Craig, could take on Toronto 1 by working out a deal with a partner. Frankly, it seems impossible that the publisher of the largest daily newspaper in Canada would want to suddenly be operating broadcast stations in Western Canada and digital specialty services by buying the whole thing.

So, out of all this, what's the scenario that makes the most sense? A CHUM purchase of Craig, with Toronto 1 being spun off to Torstar, assuming, that is, Torstar is still interested in television, given Craig's rough experience since September. The Commission may also expect CHUM to sell the MTV and MTV2 digi-nets and there would be a number of willing buyers for those.

However, if Quebecor wants Craig's assets – really wants it – it will be able to out bid CHUM.

The party likely most chagrined in all of this? The CRTC. Commissioners gave newcomer Craig the license thinking it would boost the small western broadcaster onto bigger, better things, not that it would need to bail and sell the Toronto license - and all of its others – just over four months into Toronto 1's life.
 
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