A restructuring deal to save Canwest Global is being negotiated now behind closed doors. This does not merely involve bond holders being asked to convert defaulted debt to equity. Executives are also urging the Harper Government to make major policy changes because existing regulations may be fatal to Canwest Global's newspaper and broadcasting businesses.
The Income Tax Act precludes deduction of advertising expenses for advertisements placed in a newspaper or periodical that does not meet certain Canadian ownership criteria. Canwest risks losing the vital competitive advantage because their publications may no longer be “Canadian newspapers.”
Similarly, federal legislation and regulations are designed to preserve and promote broadcasting outlets that are Canadian owned and operated. CRTC regulators admitted this week that talks have begun with Canwest Global about the issue.
In the present situation, beneficial ownership of Canwest Global is uncertain. The Asper family apparently holds almost 90% of voting shares but their ability to exercise control is limited by and subject to creditors' rights. Has the company remained Canadian or has effective ownership shifted to foreign bond holders?
The future roles of Leonard and David Asper in managing a restructured company are key items of negotiation. Debt nears $4 billion and the company has produced losses in three of the last four years.
In addition to regulatory and tax act difficulties, many Canwest Global assets are capital thirsty. Sophisticated electronic equipment required for broadcasting is expensive and short lived. New technologies or changes in broadcasting systems demand improvements to current systems. To survive, the company must commit substantial resources to new technologies while the ability to fund such implementation is non-existent.
However, coping with technological change is less critical than ensuring Canwest Global's continued status as a Canadian owned and operated company. If bondholders in New York are effectively running the company, Prime Minister Harper can hardly turn a blind eye. His ability to rescue a supportive media organization may be limited by the Conservative Government's minority status in Parliament.
Is this media empire is too big to fail? Stay tuned.
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