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Astral Media Inc. (ACM/A) fell the most in more than two decades after BCE Inc. (BCE)’s failure to win approval for its C$3 billion ($3.1 billion) takeover raised concern it will make the regulatory landscape for other bids less clear.
Jean-Pierre Blais, head of the Canadian Radio-television Telecommunications Commission, rejected the purchase of the Quebec specialty channel provider yesterday, calling it a bad deal for Canadians that would have placed too much market power in BCE’s hands.
The rejection may open doors to other bidders though it will also make those companies wary of potential complications, said Jeff Fan, an analyst at Scotia Capital Inc. in Toronto.
“Astral is still likely in play but the rules are now unclear as to who can acquire it,” said Fan, who rates BCE the equivalent of a hold. “The regulatory uncertainty around vertical integration would be a challenge to achieve a clean transaction.”
The ruling is a victory for BCE’s rivals, particularly Montreal-based Quebecor Inc. (QBR/B), which would have faced intensified competition for its Videotron cable service and TVA television network.
The decision leaves the door open for other potential suitors such as Rogers Communications Inc. (RCI/B) and Shaw Communications Inc. (SJR/B), a Calgary-based cable-television operator, said Glen Campbell, an analyst with Bank of America (BAC) Merrill Lynch in Toronto. The CRTC ruling may lead to Astral being sold in pieces to meet regulatory concerns, he said.
“As these companies consider Astral, they must now take into account the CRTC’s tough new stance on concentration,” Campbell said. “Post-Astral, M&A transactions are likely to be riskier and more complex.”
Astral fell 15 percent to C$39.51 at 4 p.m. in Toronto, its biggest decline since at least 1988. Trading volume was over 12 million shares, or more than 18 times the three-month average. BCE, Canada’s biggest telecommunications company, fell 1.4 percent to C$42.86. Both companies are based in Montreal.
Rogers, Canada’s largest wireless company, also operates cable and landline businesses, owns the CityTV and SportsNet channels, Major League Baseball’s Toronto Blue Jays and co-owns with BCE pro sports conglomerate Maple Leaf Sports & Entertainment Ltd.
Rogers said yesterday in a statement it welcomed the CRTC’s decision, calling it “a good day for consumers.” Rogers spokeswoman Patricia Trott said it was too soon to speculate on whether the company would be interested in Astral.
Shaw offers cable, Internet and landline service and the founding Shaw family holds majority voting control of Corus Entertainment Inc. (CJR/B), a media company that produces kids programming and owns 37 radio stations. Shaw spokesman Chethan Lakshman said the company has no comment.
The Ottawa-based regulator said the deal raised concerns about competition, ownership concentration in television and radio, vertical integration and the exercise of market power.
“We could not have ensured a robust Canadian broadcasting system without imposing extensive and intrusive safeguards, which would have been to the detriment of the entire industry,” Blais said.
Astral hasn’t commented beyond saying it’s reviewing the decision and considering its alternatives.
“Consumers lost and investors lost in this decision,” BCE Chief Executive Officer George Cope said in an interview today on BNN television, owned by BCE. “We met all the CRTC’s rules.”
Cope said it’s premature to discuss whether BCE must pay Astral a breakup fee of up to C$150 million since the deal collapsed for regulatory reasons. BCE has asked the federal cabinet to intervene in the decision.
The decision won’t affect BCE’s dividend guidance for 2012, Cope said. The company said Aug. 8 it expects to pay an annual dividend of C$2.27.
While Cope pushes for a reversal, Astral may be a fresh target for other bidders because an appeal to cabinet stands little chance of success.
“We see this as a long shot,” said Scotia’s Fan. “It would seem unlikely that the government would seek to reverse his first decision,” Fan said, referring to the CRTC’s Blais.
Canadian Prime Minister Stephen Harper’s government has no “legal ability” to overturn the decision and the CRTC is an “arms-length” agency, Paul Calandra, an assistant for Heritage Minister James Moore, said today in parliament.
A joint bid by Cogeco Cable Inc. (CCA), another Montreal-based cable operator, and Corus for Astral is also unlikely, says Fan. Cogeco agreed in July to buy Atlantic Broadband for $1.36 billion to expand in the U.S. and Corus’s relationship with Shaw poses a regulatory hurdle, he said.
“Cogeco just made its bet in the U.S. with Atlantic Broadband,” he said. “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 by Shaw.”
Cogeco slipped 1.4 percent to C$36.34 in Toronto. Shaw dipped 0.4 percent to C$20.59. Corus fell 2.8 percent to C$22.33. Rogers was little changed at C$41.07.
The BCE-Astral rejection may be affecting other planned acquisitions awaiting regulatory approval. Industry Canada is reviewing Cnooc Ltd. (883)’s $15.1 billion takeover of Calgary-based oil and gas producer Nexen Inc. (NXY) under the nation’s foreign- takeover law.
Nexen slipped 1 percent to C$25.15, the most since August.
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