Thursday, 22 March 2012

BCE’s Astral bid faces big regulatory fees

BCE’s Astral bid faces big regulatory fees

Mar 22, 2012 – 4:37 PM ET | Last Updated: Mar 23, 2012 9:09 AM ET
TORONTO • BCE Inc. faces paying hundreds of millions of dollars in additional regulatory fees as part of getting a $3.38-billion bid for specialty-channel powerhouse Astral Media Inc. approved. Termed a “tangible benefits” package, the country’s largest telecommunications company will feel a material pinch from a financial commitment as high as $280-million that must be coughed up on top of the bid price.

The sum is based on a combined percentage of the value of Astral’s television and radio holdings. Current broadcast regulations demand any company acquiring commercial TV or radio licences from another must pay in transfer fees amounting to 10% of the value of the TV holdings and 6% of radio. The body which oversees the dispersal of those funds is the same who hands out broadcast licences, the Canadian Radio-television and Telecommunications Commission.
The cash is used to finance subsidy schemes such as the Canada Media Fund, which gives grants to independent content producers, among other initiatives set up to foster the creation of domestic television shows, movies and new media productions.

In Astral’s case, that could mean roughly $220-million for the company’s television assets, which include The Movie Network and HBO Canada amid two dozen specialty cable networks and pay-television channels. With radio, where Astral owns 84 stations across the country, the fee attributable under the 6% rule would total slightly more than $60-million.
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BCE bid for Montreal-based Astral last Friday, a move that will create the largest media enterprise in the country by far following the telecom giant’s successful acquisition of CTV Inc. last April.
The Astral deal benefits plan would exceed the $245-million Bell is paying because of its CTV purchase last year.
The Astral total though is likely to come down as BCE is forced to sell off some radio assets in markets where it would be in breach of ownership concentration levels.
Current regulations restrict radio ownership to no more than two FM stations and two AM stations under one company in a large market, and no more than three stations combined in smaller cities.
By that measure, Maher Yaghi, analyst at Desjardins Securities, suggests that no less than 10 stations will have to be sold in order to have the deal approved by the CRTC. It means, for example, two among four popular FM stations in Toronto, like BCE’s Flow or CHUM and Astral’s Virgin or Boom must be sold. The same kind of divestiture would be forced in the Montreal, Vancouver, Calgary, Ottawa and Winnipeg markets, the analyst said.
The company will have to pay a $150-million break fee if the bid fails regulatory approval. BCE executives believe the deal will be completed by the fall, including all necessary regulatory reviews.
As part of its efforts to mount an effective argument for regulators, BCE has enlisted the help of Bay Street legal heavyweight McCarthy Tétrault.
The level of ownership within television will also be scrutinized in upcoming hearings, analysts note.
A combined Bell Media-Astral entity would own 42% audience share among English-language television services — more than double its closest competitior in Shaw Media. In previous policy decisions, the CRTC has made clear it will “carefully examine” future transactions which lead to one interest controlling between 35% and 45% of a given market.
“While this regulation does not specifically argue for turning down the transaction, it suggests the commission will spend extra time analyzing the deal and its ramifications,” Desjardins’ Mr. Yaghi said.

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