CanWest launches trust spinoff
CanWest Global Communications Corp. finally launched the income trust spinoff of its newspaper assets yesterday but left the money-losing National Post out of the sale, raising renewed speculation about the health and future of the national newspaper.
The trust initial public offering will see the creation of a limited partnership to hold CanWest's major and minor newspapers across the country, including The Gazette of Montreal, The Vancouver Sun, the Calgary Herald, The Edmonton Journal, the Ottawa Citizen and several others.
It will also hold the free youth-oriented daily Dose, CanWest's stake in the free Metro newspapers in Vancouver and Ottawa, and its website and electronic publishing ventures.
After the IPO, the publicly traded CanWest MediaWorks Income Fund will own about 28 per cent of the partnership, and CanWest will hold the other 72 per cent.
The income fund will be marketed to the investment community over the next few weeks, and the yield on the units -- likely in the 8-per-cent range, analysts say -- set early in October.
The IPO will generate around $620-million in cash, and the partnership will raise another $830-million from a debt offering. This $1.45-billion total will be used to buy the newspaper assets from CanWest, giving the parent company a pile of cash to pay off some of its debts.
The goal of the exercise, said CanWest MediaWorks president Tom Strike, is to reduce the company's interest costs and give greater market value to the firm's assets. "The whole purpose of this is to restructure our financial affairs."
CanWest is expected to step up acquisitions, once it is on firmer financial ground.
The tax-friendly trust structure, which distributes cash to unitholders, often boosts the perceived value of a company and can light a fire under its stock price. But CanWest stock dropped 26 cents yesterday to close at $14.89. Analysts said some investors who bought CanWest stock in expectation of a trust are bailing out now that the announcement has been made.
"Because it's taken so long to come about, there's a lot of people who have held it [waiting for the IPO]," said Bob Bek, an analyst at CIBC World Markets. "They're not necessarily in for the longer term."
CanWest has been considering the trust structure for two years or more. Talk of the IPO heated up in the past few weeks, moving the stock up from $13 in mid-summer.
Rumours about the Post's future have also intensified over the past few days, after the paper cut a small number of staff members, including columnists and copy editors. With the paper left out of the trust, further questions have been raised by investors and journalists about the paper's long-term viability.
Asked about possible changes to content or ownership of the Post, Mr. Strike said: "I don't think we've made any decisions in that regard."
Financial analysts said yesterday that leaving the Post out of the trust is a logical move. Trusts are valued on the cash they generate, and the paper is still no where near making a profit. "It doesn't generate any cash flow," said Kona Shio, an analyst at Conscius Capital Partners in Montreal, so it would have been a mistake to include it.
If the Post had been included, its losses would have drawn the attention of investors and pushed down the yield of the trust, Mr. Bek added. "It makes sense to have a clean income trust deal to sell at a good yield, without having those questions [about the Post] all the time."
CanWest executives have acknowledged the Post is still losing around $10-million a year. The newspaper has lost money in each of its seven years.
In order to ensure that the National Post and other CanWest properties in the broadcasting business can continue to share resources with the papers in the new partnership, CanWest has created a number of intercompany "affiliation and support services" deals. These allow for cross promotion and cost sharing to continue.
The prospectus for the IPO says the group of publications in the partnership generated revenue of about $1.1-billion in fiscal 2004, EBITDA (earnings before interest, taxes, depreciation and amortization) of $278.3-million, and a profit of $33.9-million.
A matter of trust
$620 MILLION: ESTIMATED SIZE OF CANWEST TRUST IPO
$1.1 BILLION: 2004 REVENUE IN TRUST GROUP
64%: ADVERTISING'S SHARE OF REVENUE IN TRUST GROUP
$272.3 MILLION: 2004 EBITDA IN TRUST GROUP
Paid dailies in the trust
| Circulation | |
| Vancouver Sun | 182,663 |
| Vancouver Province | 153,856 |
| Montreal Gazette | 143,569 |
| Ottawa Citizen | 139,050 |
| Edmonton Journal | 130,432 |
| Calgary Herald | 124,796 |
| Windsor Star | 73,163 |
| Victoria Times Colonist | 72,841 |
| Saskatoon Star-Phoenix | 55,076 |
| Regina Leader-Post | 51,178 |
| Nanaimo Daily News | 8,532 |
| Alberni Valley Times | 5,806 |
| Total | 1,140,962 |
Leonard Asper, CanWEst CEO, on National Post
July, 2001: "I don't foresee [the] losses going on for much longer, certainly not at the pace they are...We don't let a couple of bad quarters scare us."
August, 2001: "[The Post's losses} are irrelevant. I don't care what they are or really care. The point is we know this paper can be profitable."
September, 2001: "This is a time when measures had to be taken across the board." [After 130 people were laid off at the Post.]
January, 2003: "We will need a bit of a tailwind to get there." [On attempts to get the Post's losses down to $10-million in fiscal 2003.]
April, 2003: "We are not known to pursue proven failure strategies for a very long period of time...We are looking at anything and everything."
November, 2003: "The Post is heading toward profitability anyway...It's just a matter of time."
July, 2004: "At some point, this thing has to be a contributing member of the CanWest profit family."
SOURCES: CANWEST PRELIMINARY PROSPECTUS, THE GLOBE AND MAIL
