CanWest buys into Alliance

Takeover may be in works

Signaling its growing content ambitions, CanWest Global Communications has bought a 20% stake in Canada’s largest film and TV company, Alliance Atlantis Communications, in a deal worth more than $13 million.

The move gives CanWest, principally an owner of television and cable networks, a stronger base from which to grow its programming interests. While CanWest’s chief operating officer Leonard Asper characterized the investment as “simply a question of using undeployed capital in a more productive way,” analysts believed that it will lead to takeover overtures in the next 12 months.

It will also raise CanWest’s profile in Hollywood. Alliance Atlantis has ownership stakes in six Canadian channels, and is an international producer and distributor of film and TV product. Its Los Angeles-based Alliance Atlantis Pictures division has financed pics including “Existenz,” “The Sweet Hereafter” and Istvan Szabo’s forthcoming “Sunshine,” starring Ralph Fiennes.

CanWest currently has a disparate set of programming assets. It established a foothold in Hollywood last year with its acquisition of Fireworks Entertainment, which is responsible for the TV series “La Femme Nikita,” “Highlander” and “Pacific Blue.” Fireworks, founded by former Alliance vice chairman Jay Firestone, itself owns 25% of Peter Hoffman’s Paramount-based Seven Arts Pictures. Firestone and Hoffman are also behind the formation of foreign sales company Seven Arts Intl., and pic rights holder Chaross Films.

CanWest’s recent corporate movements suggest that it is keen to expand. It fought a hard-lost battle for control of the Vancouver-based media empire Western International Communications, and has subsequently worked out a deal in principle to take its share in a breakup of the company. This spring CanWest tried to take over the specialty channel company NetStar Communications, but the deal was pulled out from under it by rival network CTV. CanWest already owns 0.1% of Alliance Atlantis’ non-voting shares, worth an additional $3.3 million.

One Toronto analyst said, “CanWest is not going to buy 20% of Alliance Atlantis’ voting shares just to have an investment in the company. That’s not their strategy, and it never has been.”

“CanWest may not want to keep (Alliance Atlantis), but they will want to make sure they’re the lead acquirer if there are a couple of partners,” he said. “They’ll want the specialty channels and maybe the distribution assets.”

CanWest can certainly afford the $667 million that it would take to acquire all of Alliance Atlantis’ shares and debt, the analyst noted. “(A merger) would beef up (CanWest’s) specialty channel division, which is very weak compared to CTV, and help bolster its Fireworks division.”

CanWest has stakes in TV stations in Australia, New Zealand and Ireland, among other territories. Alliance Atlantis also has a number of international subsidiaries, including a distribution company in the U.K. Earlier this month, German distrib Kinowelt took a 20% stake in Alliance Atlantis for $90 million, and a 50% stake in its U.K. distrib, Alliance Atlantis Releasing.

Four senior managers at Alliance Atlantis own 47% of the company’s voting shares, and, depending on how they feel about CanWest’s new voting presence, their next move might be to push their stake up over the 50% mark.

The shares came from Fidelity and were traded through Yorkton Securities.

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