Why Is Goldman Advising CanWest On Its Programming Line Up?
When a few weeks ago we presented the concept of certain banks stealthy encroachment into the media world we were half joking. After all, the FCC would never allow Wall Street entities, even with equity control, to have a say in program line up and content, right? Needless to say, the potential for abuse (call it brain washing, or what you will) is simply staggering. Separately, two days ago, we highlighted the bankruptcy of Canada's biggest media company, CanWest, whose bankruptcy filings we are still combing through, looking for some of the usual suspects. Which is why we read with great interest Andrew Willis' article in today's Globe and Mail "Inside Goldman's deal with CanWest" which may have helped us, and our readers, elegantly put some of the pieces together.
First, some highlights on CanWest's pre-existing relationship with Goldman Sachs:
Goldman Sachs bankrolled CanWest chief executive officer Leonard Asper in 2007 when he bid on Alliance Atlantis Communications. It’s fashionable to give Mr. Asper a hard time for that deal, but it was well structured.
CanWest got control of money-spinning channels, including History Television, Showcase, and Food Network Canada. The company had to put up less than $200-million. (Which is not to say Mr. Asper didn’t make mistakes: Failing to sell the Australian TV network and buying back CanWest’s newspaper income trust were doozies.)
However, in return for its capital in 2007, Goldman Sachs got two contractual agreements that the new owners would love to overturn, because these provisions give the investment bank a potentially enormous stake in the TV unit.
In simple terms, Goldman Sachs has the right to sell back its specialty TV stake at a premium price. And the investment dealer will eventually set the level of its stake in CW Media based on a formula that reflects the unit’s performance.
If CanWest’s new owners can negotiate a change in the formula that determines the investment dealer’s equity stake, or trim what the investment dealer makes when it moves to sell that holding, they are effectively shifting the value of the specialty TV business from Goldman Sach’s wallet into their own back pockets.
And over time, CW Media is likely to be sold at a premium price - likely eight times their forecast EBITDA. Astral and Corus are at the front of a long line of potential buyers.
And for the piece de resistance:
Goldman Sachs sees no reason to revisit its arrangement with CanWest, which has been blessed by Canadian regulators, according to several sources close to the investment dealer.
To date, Goldman executives have not been invited into restructuring talks, a subject of considerable frustration at the investment bank, sources say. Financiers working with Goldman said that over the past year, the investment bank put forward programming ideas for the TV networks, and offered strategic advice on restructuring, but was ignored by CanWest management and its creditors.
One concept that’s been tossed around, but couldn’t move forward until CanWest recapitalization was set, would see Goldman Sachs provide programming and financial support to the conventional television network as part of a larger deal that reworks the entire ownership structure to more closely align all the TV holdings.
Earmuff time: why the fuck is Goldman even considered to provide "programming ideas and support?" Granted this is a case where the firm obviously has extensive and deep tentacle reach, however it is the biggest Canadian media company. And if Goldman can act with impunity to determine what the channel line up and who can and who can't be on TV, does this not raise a huge ethical problem straight out of modern version of "1984"? Although CNBC anchors can rest assured that if the Comcast deal does work out and they all end up jobless, there will be a willing home for them to spin their propaganda.
Also if this is true for CanWest, just where else does Goldman Sachs provide "programming idea" advice? Granted, the gullible audience does not care as it is brainwashed into the next massive paradigm, be it securitization part 2, or "buy, buy, buy any stock on the dips," in fact max out your credit cards just so you can own the next pets.com for the short period of time before even that is worth zero. After all, those fine TV people said so, compliments of Goldman's TV station content line up brigade.
And even as Goldman is ultimately everywhere, what is troubling is that, as Zero Hedge discussed previously, distressed hedge funds will soon end up assuming equity stakes in a plethora of soon to be CanWests, however this time in the U.S.
There are three funds driving the CanWest restructuring, and two of them are U.S. money managers: GoldenTree Asset Management, Beach Point Capital Management, along with Toronto-based West Face Capital Inc. Sources say these funds have already doubled their money on their CanWest investment, in part because the Winnipeg-based company’s stake in Australia’s Ten Network Holdings Ltd. was sold for a better-than-expected $634-million last month, and much of this money was used to pay down debt.
In looking at the emerging ownership of CanWest, which is tilted heavily towards U.S. distressed debt funds, one source said: “The government [of Canada] doesn’t want to see these assets flipped, for a quick profit. The goal should be to build a vibrant media company.”
So look for both sides to smooth things over. Finance circles are small. Distressed debt funds that are creditors to CanWest also own debt in CW Media, the specialty channel division, which should calm negotiations over the future of the specialty TV unit. These funds are also Goldman Sachs clients.
There are two alternatives at this point: the FCC can take a long hard look at the issue of just who is it that is running the brainwash brigade these days (unlikely), or, more likely, a recommendation to turn off your TV, radio, and Kindle for good. Hopefully between that, and stopping trading, the only means for the squid to continue generating record amounts of revenue will finally run dry. Unfortunately, having become a virtual monopoly of every aspect of modern lives: from the stock market casino, to American Idol, to the four letter named GE-infomercial station, the only way to starve the cephalopod, is by radically changing every aspect of our own everyday lives.