Bay St. ponders CHUM’s future
Canada’s media industry is bracing for a possible sale of broadcaster CHUM Ltd., fuelled by speculation that founder and controlling shareholder Allan Waters is in poor health and his shares, and others controlled by his family, might soon be available for sale. Rumours about CHUM’s future have percolated for several years, but what’s interesting about recent developments at the media company is that several possible acquisitors for CHUM have both healthy debt loads and cash on hand to spark a bidding war, several media industry executives said in recent interviews. CHUM’s properties include 12 local TV stations, including Citytv; 21 specialty channels, including MuchMusic; and 33 radio stations across the country. Companies including Astral Communications Inc., Corus Entertainment Inc., Quebecor Inc. and Alliance Atlantis Communications Corp., which has backed away from film and TV production and has repositioned itself as a broadcaster, are believed to be interested in buying some or all of CHUM’s broadcast properties.
Several media executives said BCE Inc., which owns CTV, and CanWest Global Communications Corp., owner of the Global TV chain, probably wouldn’t be candidates to buy CHUM because of regulatory- related obstacles.
It is widely believed within the media industry that TD Securities Inc., the Toronto Dominion Bank’s investment- banking group, would be hired to oversee
a sale of CHUM if the Waters family decided to sell.
Alan Mayne, CHUM’s chief financial officer, was managing director of TD’s media investmentdivision before he joined the broadcaster last year.
Waters’ ties to CHUM date to 1954, when he bought 1050 CHUM Toronto, a radio station that broadcast from “ sun- up to sundown,” according to a company account. Waters transformed the station into Canada’s first 24- hour rock station three years later.
In 1978, Waters entered the TV industry in earnest when CHUM merged with the upstart Citytv. The 84- year-old Waters has been admitted to St. Michael’s Hospital, and a hospital spokesperson yesterday wouldn’t disclose his condition. Jim Waters, Allan’s son and CHUM’s chairman, said his father’s condition was stable.
“ There was a bit of a trip- up with some of the meds that he was on, and they’re just trying to get that levelled,” Jim Waters said yesterday in an interview. “ They can do that better in there than they can at home, so that’s really all that’s going on there.”
Waters insisted his family isn’t looking to sever ties to CHUM.
“I suppose there’s always a possibility there might be some interest from other companies, but . . . I and Ronny and my father are certainly not interested in selling,” Waters said. “ My father spent his life building the company, and it was his wish that the family continue operating the company, and that’s what is happening.” Jim Waters said his father was admitted to hospital about a week ago. These days, Toronto-based CHUM would be a coveted property, having boosted revenue steadily in recent years. In the fiscal year ended in August, CHUM recorded record sales of $ 628.4 million and booked net income of $ 41.4 million. The company’s shares, meanwhile, are down 6 per cent this year. That probably wouldn’t be a factor in a possible sale, however, because no outside investor could buy up enough shares to impact the company’s future.
Still, recent trading volume has been unusual. On Nov. 1, 1,200 CHUM shares traded hands, nearly 10 times the six- month average of 147 shares a day. Waters, however, attributed the volume to the release of CHUM’s fourth-quarter earnings a few days earlier. Jim Waters and his brother, Ron, stepped aside from their positions overseeing day- to- day operations at the company in December 2002, when Jay Switzer was hired as chief executive.
Despite Jim’s objections, several media industry insiders have said he and his brother might press for the family’s shares to be sold soon because equity analysts are predicting CHUM’s recent run of strong financial results might be about to soften.
According to an information circular distributed to shareholders on Nov. 16, 2004, Allan Waters owns 5.9 million common shares, or 87.9 per cent of CHUM’s outstanding common shares. A subsequent securities form filed with stock-market regulators in January indicated members of the Waters family directly or indirectly controlled approximately 89 per cent of the company’s common shares.
In an Oct. 31 report to investors, CIBC World Markets analyst Robert Bek wrote that, while CHUM’s TV segment reported revenue growth of 8.8 per cent in the financial quarter ended August, led by specialty TV, “ the tone for 2006 is more cautious for TV with intense competition and modest growth in ad markets.”
In the same report, Bek wrote that, while CHUM’s radio unit “ had another strong quarter . . . our expectations for 2006 have been lowered,” thanks partly to new start- up stations in several radio markets. One media- industry executive said yesterday that some of Allan Waters’ CHUM stock is tied to his charitable foundation, which might complicate a sale.
“ CHUM is a dividend- paying stock, and, while there’s always atime to sell, this might be it and it might not be,” the executive said. “ They’ve just got new management in there . . . If I were sitting there, it would have to be a pretty big number to get me to sell.” The executive said a sale price for all of CHUM, which has a market cap of $829 million, would probably eclipse $ 1 billion.