Complexity stalls Canwest sale

Opinion

Hey there, time traveller!
This article was published 17/06/2010 (5566 days ago), so information in it may no longer be current.

On Friday, an Ontario Superior court is likely to approve the sale of the Canwest newspaper group to its note-holders led by former National Post publisher Paul Godfrey.

Next Tuesday, the same court will be asked to approve the sale of Canwest’s television assets to Shaw Communications.

The newspapers went into court protection in early January and there now seem to be few if any impediments that will prevent the $1.1-billion deal from proceeding.

It has been even longer (eight months) since the television assets and the parent company began its separate restructuring process.

At least part of the reason the process has gone on as long as it has is the sheer complexity of the structure of the company, irrespective of its relative state of insolvency.

Canwest’s tricky partnerships and mind-numbing merger and acquisition deals were a hallmark of the company founded by Izzy Asper, a noted tax lawyer in his day.

That’s not necessarily the cause of the last potential hurdle for the sale of the television assets to go through, but it is playing a role.

On Tuesday, before the court approves the sale of the Canwest television assets to Shaw, it will have to address a last-ditch plea from Canwest shareholders, led by Leonard Asper, to have the court shelve the Shaw deal and start another auction process.

Another few hundred pages of documents were added to the court file this week and late last week. Included in this latest legal skirmish is a fascinating 25-page page affidavit from Asper, the former Canwest CEO and longtime director.

It was followed a few days later by an 11-pager from Tom Strike, the company’s president, corporate development and strategy implementation and recapitalization officer.

Asper’s affidavit presents in surprising detail the activities in which he has been engaged to save the family’s stake in the company, starting in early 2009 when it was clear its debt load was untenable.

In his affidavit, he documents meetings with the largest member of the ad hoc group of note-holders, Golden Tree, a New York hedge fund. It made it clear to Asper the note-holders did not want to sell out, but convert their debt to equity with the aid of a new Canadian investor in a restructured Canwest, and that the Aspers would have the right to reinvest with others.

Asper said an arrangement was essentially in place with Golden Tree by early October, whereby shareholders would keep a 2.3 per cent stake to maintain a public float for the stock and that the Aspers would have the chance to re-up with $10 million to $15 million in new equity. It was on that basis Asper agreed to the Companies’ Creditors Arrangement Act filing.

But later in October he got a call from another New York private equity firm, Angelo, Gordon & Co., telling him it had just bought a significant portion of the notes and after that Asper was given to believe the arrangement with Golden Tree was “off the table.”

The affidavit is illuminating as a kind of behind-the-scenes account (albeit, with some of the names and numbers left out), but it is a document that details only one version of reality.

It is also sad it has come to this for Asper. At one point in the affidavit he says, “I was threatened in a letter from Canwest Global, to the effect that if I disclosed information contrary to certain alleged confidentiality obligations, that Canwest Global would exercise its ‘rights and remedies’ against me.”

That letter was written by Richard Leipsic, Canwest’s longtime senior vice-president and corporate counsel.

As the senior executive with the company — which has not yet been sold to new owners — it was up to Tom Strike to essentially rebut Asper’s argument that the auction was not fair.

Strike and Leipsic were Asper’s longtime senior deputies, now pitted against their ex-boss in a modern version of corporate death by a thousand cuts.

Among other things, Strike addresses the issue of the alleged injustice former shareholders — the Aspers being the largest members of the group that also includes Strike — have been completely cut out of the most recent Shaw restructuring deal, even though they had essentially been promised a small stake all along.

He discounts claims Asper and his professional consultants make that the company has generated more operating profit since the court protection began than it really has and that the Shaw deal continues to be the best for all stakeholders.

Finally, Strike shoots downs Asper’s contention that a new auction should take place for 100 per cent of the company by pointing out that could never happen because Canwest never actually owned 100 per cent of the assets, thanks to the weirdly complex partnerships deeply embedded throughout the corporation.

martin.cash@freepress.mb.ca