THE ASTONISHED FEEDBACK came fast and furious late Thursday as people tried to give voice to their feelings on the Commission decision to deny Bell Canada’s $3.4 billon purchase of Astral Media.
“Like most observers, we had expected conditional approval,” said analyst Dvai Ghose of Canaccord Genuity in a note to clients. “This could also have implications for other potential media transactions such as Shaw-Corus, although in that case both entities are already controlled by the Shaw family. We also believe that the speculation of a Corus bid for Astral could rise and could be more palatable for regulators.
“While we assume that BCE is extremely disappointed, we actually believe that a deal break could be fundamentally positive for BCE – We never understood the strategic rationale behind the deal for BCE because 1) connectivity providers that do not own content have generally reported better results than those who do – Telus’ wireless ARPU, wireless data ARPU, churn and broadband subscriber growth are best-in-class; 2) due to increased leverage through media acquisitions, BCE only bought part of Q9, with the financial partners buying the rest, even though the deal that closed this week only values Q9 at $1.1 billion – we hope that if the Astral deal breaks, it accelerates BCE’s acquisition of all of Q9, a much more important asset for BCE in our view; 3) we believe that Bell Canada’s broadband strategy is behind peers like Telus, in part because media has taken near term precedence over connectivity; 4) for us, the CRTC’s strict vertical integration rules, which were released last September, make a mockery of vertical integration as they prevent content exclusivity across platforms and genres; 5) we view Astral as an increasingly legacy asset, which is exposed to OTT substitution and is showing signs of maturation, especially in the pay TV segment; and, 6) in our view, carriers should not own content, but instead should try and source content from the best sources available.
The number one reason this is negative for BCE is that we believe its dividend growth strategy is now compromised without Astral,” said analyst Jeff Fan of Scotiabank, in a note to clients. “The Astral transaction would have provided BCE with the necessary EPS and FCFPS accretion to fund its 5% dividend growth in 2013. BCE was so confident about the Astral transaction and the support for the dividend that it pulled forward its dividend increase announcement to August.
“The number two reason this is negative for BCE is that we believe Astral’s cash flow would have been an important source of funding for Bell’s Fibe roll-out. Without Astral FCF to support wireline capex, BCE may not be able to accelerate its fibre expansion and leave more of Bell’s territory vulnerable to cable competition. Otherwise, it may have to raise its capex intensity to accelerate the rollout.
“Astral should still be in play but the rules are now unclear as to who can even acquire it. Rogers is likely interested in some of the assets but may not be allowed to buy all. There has also been speculation that Cogeco and Corus could partner to take it out. But Cogeco just made its bet in the U.S. with Atlantic Broadband. And like Rogers, with Corus being considered under the Shaw umbrella, it may not be able to pursue this as it will likely be considered another vertical transaction.”
"We commend the CRTC for this courageous decision. We believe that Canadians should have fair and open access to content. This is a good day for consumers,” said Rogers Communications vice-chairman Phil Lind.
"Evidently, this decision was taken in the best interest of not only the Canadian broadcasting system but also in the best interest of all Canadian consumers. It demonstrates the CRTC's desire to ensure healthy competition in the Canadian communications industry and to protect the interest of consumers,” said Cogeco CEO Louis Audet.
“Given the stakes of this proposed transaction and the impact it could have had on the Canadian media landscape we respect the Commission’s desire to see that the Canadian public’s best interests are being looked after,” said Ferne Downey, ACTRA National President. “We trust their analysis of the transaction and defer to their decision to maintain the status quo, for now.”
“In today’s clear and unequivocal decision, the CRTC listened to concerns voiced by Canadians and public interest groups about the proposed Bell bid to acquire Astral,” said Janet Lo, Counsel for the Public Interest Advocacy Centre. “Bell did not prove that this deal would benefit consumers through increased choices, improved service, or price reductions.
“The Commission drew a bright line that Bell’s proposed bid for Astral would result in too much control in the hands of Bell and reduce competition to the detriment of Canadian consumers. The Commission is sending a strong message to the broadcasting industry that any future media consolidation transactions must be proven to serve the public interest, reinforcing the importance of a healthy diversity of voices in the Canadian broadcasting system.”
Somewhat surprisingly, Quebecor, one of the most vocal opponents, made no official statement about the decision.
- Greg O'Brien