Bell-Astral Deal: Astral Media Shares Plunge In Wake Of CRTC Decision To Block BCE Takeover

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George Cope, BCE president announces the take over Astral Media Inc. by Bell in a deal worth about $3.38 billion Friday, March 16, 2012 in Montreal. CRTC turns down $3.4-billion takeover of Astral Media Inc. (TSX:ACM.A) by BCE Inc. (TSX:BCE).THE CANADIAN PRESS/Paul Chiasson) | CP

MONTREAL - Telecom giant Bell isn't giving up on buying TV specialty and radio station company Astral Media and plans to make its case to federal cabinet, though Ottawa has suggested it has little appetite to intervene.

Bell said Friday that it will petition the Harper government, arguing the Canadian Radio-Television and Telecommunications Commission didn't properly follow its own rules, and if it's successful will re-submit its $3.4-billion deal to buy Astral (TSX:ACM.A).

"I think if government spends even just a bit of time looking at it, it will become so readily apparent and obvious that yesterday's (Thursday) decision is an absolute travesty, an absolute farce when it comes to regulatory administration," said Mirko Bibic, chief legal and regulatory officer for BCE Inc. (TSX:BCE).

Bibic said Bell isn't asking for the decision to be appealed or overturned, but for cabinet to tell the CRTC to apply the current rules.

Bell said it will a request on Monday that cabinet issue a "policy direction" to the CRTC under Section 7 of the Broadcasting Act, requiring the commission to follow its already in-place policies when reviewing change of control transactions in broadcasting.

"The Broadcasting Act explicitly empowers the cabinet to issue directions to the CRTC on broad policy matters,” Bibic said.

"With such a policy direction in place, Bell would then re-submit its application for approval of the Astral transaction."

The CRTC nixed the deal by Bell on Thursday, saying it wasn't in the best interest of Canadians.

CRTC commissioner Jean-Pierre Blais said had the regulator allowed the deal, BCE would have controlled almost 45 per cent of the English TV viewership and almost 35 per cent of the French. As well, it would have become the largest radio station operator in Canada and would have controlled over half of TV pay and specialty services.

But Bell disagrees, saying Bell and Astral combined would have an English-language TV market share of 33.5 per cent. The combined companies would have a 24.4 per cent of the French-language TV market, both within the rules, Bell said.

Bibic said Bell will argue that its proposed acquisition of Astral was guided by, and complies with, the CRTC’s 2008 Diversity of Voices policy, which states it would approve broadcasting transactions resulting in a company controlling less than 35 per cent of the total TV audience share.

But Industry Minister Christian Paradis said that the CRTC is an independent commission that makes its own decisions.

"The CRTC operates on an arm's length from the government," Paradis said at an event at the Canadian Space Agency, south of Montreal.

"I understand that they held hearings and they made their decision so at that point I will no longer comment since the decision is still there," he said.

"Bell, I don't know what they will do, but the decision was clear in terms of a conclusion and we do respect what the CRTC said on this regard."

Chief executive George Cope said Canadians are the losers and BCE's competitors are the winners.

"The cable guys, they won again today in this decision," Cope told BNN, the all-news business channel, owned by Bell Media.

"Consumers lost. The investment community lost. It's the wrong decision for Canada."

Cope said the CRTC overestimated Bell's share of the English-speaking market because it did not include U.S. content viewed by Canadians.

A CRTC spokesperson has said a challenge could go to the Federal Court of Appeal rather than to the government.

Cope said based on the ruling, he doesn't believe that BCE would be allowed to bid on Astral's assets if they were put up for sale again.

The surprise decision by the CRTC was announced after stock markets closed Thursday and marked the first major ruling for newly-installed commissioner Blais, who took over in late June.

Astral Media Inc. shares tumbled 16 per cent in response to the decision that blocked the friendly takeover of company. Astral owns specialty TV and radio stations, including the pay TV channel, The Movie Network.

Astral's class A shares (TSX:ACM.A) fell $7.49 to close at $39.51 on the Toronto Stock Exchange.

National Bank Financial analyst Adam Shine said there is likely no other sole buyer for Astral.

"Assuming Bell moves on, we don't see any other party stepping forward to bid on Astral in totality," Shine wrote in a research note.

"Corus and Rogers would have to be considered possible bidders for Astral's English-language assets, with Transcontinental a potential player that may seek to acquire French-language assets or more," Shine said.

BCE Inc. shares were down 77 cents to close at $42.86.

RBC Capital Markets analyst Drew McReynolds said he doesn't believe the deal can go ahead at all.

"To our knowledge, there is no precedent for cabinet intervention in a broadcasting merger and acquisition transaction," McReynolds wrote in a research note.

"Furthermore, the breadth of the expressed CRTC concerns and overall lack of clarity around the regulatory framework underpinning this decision, make another bid for Astral by BCE unlikely, in our view."

BCE Inc. shares were down 77 cents to close at $42.86.

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