Canwest stock up on sale of stake in Australian broadcaster Ten Network

By David Friend, The Canadian Press

TORONTO - Canwest Global Communications Corp. (TSX: CGS.TO) has sold its majority stake in Australian broadcaster Ten Network Holdings, but the Canadian media company will have to do more to get analysts and ratings agencies back on its side as it restructures under a massive debtload.

On Thursday, observers shrugged off the transaction as another step towards Canwest's attempt to stave off filing for bankruptcy protection from creditors.

Moody's Investors Service issued a report which said the pending sale of Ten was "a positive development" but that it "has no impact on Canwest's corporate family and probability of default ratings."

Investors seemed to disagree as buying sentiment helped the company's stock soar on the Toronto Stock Exchange. Canwest shares closed the session at 21.5 cents, up about 72 per cent or nine cents.

Canwest announced late Wednesday it had signed a deal to sell its entire 50.1 per cent stake in Ten Network Holdings to Macquarie Capital Advisers Ltd., a transaction slated to close Oct. 1.

The deal will give the company about C$613 million to repay debt as it restructures. Canwest, which owns Global television, the National Post and an array of big-city Canadian daily newspapers, has been struggling to repay about $4 billion in debts and loans over the last two years.

One analyst said the move will help Canwest tackle its debts, but he cautioned that investors should put the sale into perspective.

"While we acknowledge this represents an important milestone in the recapitalization of Canwest, we remain of the view that there is little or no residual value in (Canwest Global) shares," BMO Capital Markets analyst Tim Casey wrote in a note on Thursday.

Casey said the sale helps Canwest remove about $580 million of debt related to Ten Network from its balance sheet.

Canwest said Wednesday it has agreed with a group of its lenders to use $102 million to repay its 12 per cent senior secured notes issued by Canwest Media and Canwest Television LP. Another $85 million will be used for general corporate and working capital purposes, including the repayment a senior secured revolving asset-based loan facility with CIT Business Credit Canada Inc.

The Winnipeg-headquartered company also agreed to deposit $426 million with a trustee for the holders of its eight per cent senior subordinated notes.

Canwest has considered selling its stake in Ten Network before, and first put the commercial television channel up for sale in October 2006, when Australian foreign ownership rules were relaxed.

After a failed search for an attractive bid, Canwest yanked the broadcaster off the market and completed a share exchange plan that gave it majority ownership of the network.

Since then, Canwest has sold numerous other assets including its local E! channel branded stations in Canada, indirect interests in four Turkish radio stations, and American political magazine the New Republic as it refocuses its business.

Duncan Stewart, director of research and analysis at DSam Consulting, said that Canwest executives need to consider selling further assets to deal with the company's debt.

"Even after this they still have far more debt than they do equity," he said.

"The challenge is, can they keep selling bits (of the company) and still have something remaining at the end? Yes they can, but it also depends what people pay."

Observers have suggested that Canwest is scouring the market to find buyers for its local newspapers in British Columbia. Fellow industry players like Glacier Media, Transcontinental and Black Press have been named as the most obvious suitors.

Black Press, a private company controlled by Vancouver native David Black, is considered a serious candidate because of the company owns numerous community papers in B.C. Black has spent the past decade aggressively growing its operations, though its financial details aren't made public.

Canwest could also move ahead with other changes, including scaling back the control that CEO Leonard Asper and his family have over the voting shares of the company.

Asper has reportedly been reluctant to make this move, though pressure has been mounting by lenders, some reports have suggested.

Stewart said if Canwest doesn't sell off newspapers, it could put its Global local TV channels across the country on the market.

"They wouldn't get much for it, but you don't need a broadcast arm to go along with your specialty channels," he said.

Canwest has put increasing business focus on its lucrative specialty cable TV channels such as Showcase, Action and Slice, which makes it unlikely that it would want to sell those broadcast properties.

"Certainly the crown jewel is the specialty (channels)," Stewart said.

"Although that's the one that would command the most money, it's also the one that's probably the best business going forward."