NetStar deal sealed

CTV gets 68%, large debt

TORONTO — The C$409 million (U.S. $268 million) agreement that will see CTV Inc. pick up 68% of Canadian specialty-channel powerhouse NetStar Communications closed in trust Friday.

The purchase price is based upon the value of 68% of NetStar, $595 million, less its debt as of the end of February. CTV snatched the deal from rival CanWest Global Communications thanks to Disney subsidiary ESPN, which owns the remaining 32% of NetStar.

A month ago, NetStar’s Canadian shareholders approved a slightly lower offer from CanWest, but the agreement was subject to ESPN’s preemptive right to seek a better deal, which it found in CTV. CanWest reportedly objected to some conditions of ESPN’s shareholder agreement as too arduous for a minority shareholder. Under the terms of CTV’s offer, ESPN’s shareholder-rights agreement will remain essentially unchanged.

CTV’s purchase of a majority stake in NetStar, which was financed by a syndicate of three major Canadian banks, adds a large burden to the network’s already hefty debt load, estimated at more than $131 million. A share issue led by Newcrest Capital is rumored to be in the works.

The closing moves the transaction to the next stage, which is the regulatory approval process. Applications must go to broadcast regulator Canadian Radio-Television and Telecommunications Commission (CRTC) and Canada’s competition bureau.

“We’re going to be looking at foreign ownership and control, diversity of voices, horizontal concentration and what the deal brings to the broadcasting system,” said CRTC spokesman Denis Carmel. The decisions are not expected until after the new year; until they are announced, the shares of NetStar will be placed in trust.

Approvals are far from certain, however. CTV already owns 40% of the recently launched regional sports specialty station Sportsnet, and its control of NetStar would add TSN, Canada’s largest sports specialty channel, to its stable. Representatives of Major League Baseball, the NBA and the NHL have complained that the sale would give CTV a virtual monopoly over sports television in Canada. The only other Canadian sports specialty channel is Headline Sports, whose conditions of license do not permit it to air any live sports coverage.

Should the approval process not go as planned, Global has made no secret of its willingness to jump back into the fray. “If the CRTC turns this thing down and something popped up,” said CanWest spokesman Bruce Leslie, “we’d be interested.”