ARCHIVED - Broadcasting Public Notice CRTC 2002-19

Broadcasting Public Notice CRTC 2002-19

Ottawa, 19 April 2002

Introductory statement to Broadcasting Decisions CRTC 2002-91 to 2002-93: Transfer of the assets of the radio, television and network undertakings in Ontario, Alberta and British Columbia formerly held by Telemedia

1.

In three decisions issued today, the Commission approves applications to acquire the assets of broadcasting undertakings in Ontario, Alberta and British Columbia that were formerly held by Telemedia Radio Inc. and Telemedia Radio (West) Inc. (collectively referred to in this notice as "Telemedia"). These assets include 64 radio stations and related transmitters, including two transitional digital radio undertakings, as well as three radio networks and television stations CJDC-TV Dawson Creek, B.C. and CFTK-TV Terrace, B.C. These transactions result from a decision taken by Telemedia to divest of all of its broadcasting assets across Canada.

2.

As a result of today's decisions, the assets of each of the stations and networks formerly held by Telemedia have been transferred to one of three parties: Standard Radio Inc. (Standard), Rogers Broadcasting Limited (RBL), or 3937844 Canada Inc. (3937844), a subsidiary of Newcap Inc. The three decisions can be summarized as follows:

. In Standard acquires the assets of radio stations, radio networks and television stations in Ontario, Alberta and British Columbia, Decision CRTC 2002-91, 18 April 2002, (Decision 2002-91), the Commission approves applications by Standard to acquire all of the broadcasting assets formerly held by Telemedia in Ontario, Alberta and British Columbia.

. In Rogers acquires the assets of radio stations and a radio network in Ontario, Decision CRTC 2002-92, 18 April 2002, the Commission approves applications by RBL to acquire the assets of 14 radio stations, including one transitional digital radio undertaking, and one radio network that Standard acquired from Telemedia in Decision 2002-91. All of the stations that RBL has acquired are located in Ontario.

. In 3937844 Canada Inc., a subsidiary of Newcap Inc., acquires the assets of radio stations in Alberta, Decision CRTC 2002-93, 18 April 2002, the Commission approves applications by 3937844 to acquire the assets of 15 radio stations and related transmitters that Standard acquired from Telemedia in Decision 2002-91. All of the stations that 3937844 has acquired are located in Alberta.

3.

A complete list of the undertakings owned by each party as a result of today's decisions is set out in the appendix to this notice. Each of the licences will be subject to the same conditions that were in effect under Telemedia's ownership. Upon surrender of the current licences, new licences will be issued to the final owners. The new licences will expire on the same date as the current licences, with the exception of licences that currently expire on 31 August 2002. The terms of such licences have been extended for one year until 31 August 2003 so that the new owners will have adequate time to prepare their licence renewal applications.

Issues

4.

The individual decisions address matters such as the applicants' benefits commitments as well as the terms and conditions of licence for the individual undertakings. Matters related to the value of the transactions, financial gains that could be generated from reselling broadcasting undertakings within a relatively short period of time, and possible concerns related to the sale of the Calgary FM station licensed to Telemedia in 2001 are dealt with below.

The value of the transaction

5.

Under the Commission's Commercial Radio Policy 1998, Public Notice CRTC 1998-41, 30 April 1998, applicants proposing to acquire the assets of radio stations must provide a benefits package related to the development of Canadian talent that has a value of 6% of the transaction as approved by the Commission. Under Building on success - A policy framework for Canadian television, Public Notice CRTC 1999-97, 11 June 1999, applicants proposing to acquire the assets of television stations must propose benefits packages equal to 10% of the value of the transaction.

6.

The financial aspects of the transaction may be described as follows:

. Standard will acquire the Telemedia assets with a combined value of $385.4 million. This amount includes $15.8 million for the two television stations and $369.6 million for the radio undertakings.

. Standard will then sell various Ontario radio undertakings to RBL for $100 million, and various radio undertakings in Alberta to 3937844 for $39.3 million.

7.

Therefore, the value of the undertakings that Standard will acquire and retain is $246.1 million. Of the total value, $230.3 million relates to the radio undertakings. The two television stations have a value of $15.8 million.

8.

All of the applicants have used the amounts set out above as the basis for determining the amount of the tangible benefits packages that they have developed.

9.

The sale price of the assets that Standard is selling to Rogers and 3937844 is the same as Standard is paying to acquire them from Telemedia. Standard therefore submitted that it was not receiving any gain from the sale of the former Telemedia radio assets. The applicants noted that the three purchase agreements were negotiated in the market between buyers at arms length.

10.

An independent third party valuation report was not submitted. The applicants indicated that they considered that such a report was not necessary because the three purchase agreements were negotiated in the market between buyers at arms length. However, they submitted additional information on the expected 2002 Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) and the EBITDA multiples used to determine the purchase prices.

11.

Using multiples of the EBITDAs, the Commission compared the 2002 EBITDAs with the EBITDAs realized by the Telemedia stations in recent years. It also examined the multiples of comparable transactions in recent years.

12.

In the case of Standard, the radio and television EBITDA multiples were respectively 12.45 and 15.70. The EBITDA multiples for the RBL Ontario radio stations and the 3937844 Alberta radio stations were respectively 12.70 and 12.60. The Calgary FM station licensed to Telemedia in 2001 had not been implemented at the time that the current applications were filed with the Commission. The parties assigned a value of $2.8 million to the station based on the estimated sunk costs by the time of the launch.

13.

The Commission notes these transactions were negotiated in the market by parties at arms length and it considers that the aggregate EBITDA projections and EBITDA multiples for each of the transactions are reasonable and in line with other transactions. With respect to the Calgary FM station, the Commission considers that $2.8 million reasonably reflects the costs required to launch an FM station in a major competitive market. It therefore accepts the values of the transactions put forward by the applicant as the basis for determining the value of the benefits packages.

Financial gains from the transactions

Sales by Telemedia

14.

The Commission is concerned when parties acquire broadcasting undertakings and sell them after a short period of time and examines such acquisitions on a case by case basis. In this case, the Commission examined the financial gains realized by Telemedia. Telemedia is selling to Standard the assets of the following undertakings within a relatively short period after it acquired them:

. Radio stations and two television stations acquired from Okanagan Skeena Group Limited (Okanagan Skeena) in Transfer of control, Decision CRTC 99-471, 18 October 1999.

. Radio stations CHUR-FM North Bay, CHVR-FM Pembroke, CJQM-FM Sault Ste. Marie and CJMX-FM Sudbury acquired from Pelmorex Radio Inc. (Pelmorex) in Acquisition of the assets of four Pelmorex radio stations, Decision CRTC 99-38, 17 February 1999.

. The Calgary FM station licensed to Telemedia in Three new radio stations to serve Calgary, Decision CRTC 2001-172, 12 March 2001 (Decision 2001-172).

15.

After examining the purchase price that Standard paid for the former Okanagan Skeena and Pelmorex stations, the Commission is satisfied that the purchase price reflects a fair market value for these assets, and that Telemedia did not realize unreasonable financial gains from these transactions.

16.

The parties assigned a value of $2.8 million to the new FM station in Calgary based on the estimated sunk costs by the time of the launch. Telemedia is selling the station to Standard for $2.8 million. The Commission therefore considers that Telemedia is not making a profit on the sale of the new Calgary FM station to Standard.

Sales by Standard to RBL and to 3937844

17.

In reviewing these transactions, the Commission notes that there were some similarities to transactions that it approved in Decisions CRTC 89-766 to 89-771, 28 September 1989. In those decisions, the Commission approved a sequence of share and asset transfers representing a plan for the transfer of effective control of Selkirk Communications Limited (Selkirk) and of the various broadcasting undertakings owned by Selkirk to Maclean Hunter Limited (MHL), and for the subsequent transfer of control of certain of the former Selkirk broadcasting undertakings to other parties.

18.

At that time, the Commission examined the question of whether MHL, as a result of the disposal of certain of the broadcasting undertakings to third parties, stood to make a financial gain by obtaining assets of a value in excess of the costs it incurred to acquire them. In Decision CRTC 89-766, the Commission concluded that, by divestiture of certain broadcasting undertakings and through approval of the associated transactions, MHL was making a financial gain by acquiring assets having a value of $21.2 million in excess of the price paid for the Selkirk shares. The Commission considered that it was not appropriate for this excess value to accrue to MHL, but that the $21.2 million should rather be devoted to achieving the greatest possible benefit for the broadcasting system. The Commission therefore directed MHL to use the $21.2 million for the creation of a permanent capital fund designed to strengthen and improve the Canadian broadcasting system.

19.

The Commission notes that, in the current transactions, Standard is selling certain assets formerly held by Telemedia to RBL and 3937844 for the same price that it paid to Telemedia for those assets. Standard is therefore making no financial gain from the sales to RBL and 3937844.

The new Calgary FM station

20.

In Decision 2001-172, the Commission approved applications to establish two new commercial radio stations and a not-for-profit Native station in Calgary. One of the new licences for a new commercial FM station was awarded to Standard, and the other to Telemedia. The Commission concluded that, while Standard's application rated most highly among the applicants, Telemedia's application should also be licensed. The Commission considered that the new Telemedia station, which would operate with a specialty smooth jazz format, would expand the diversity of radio programming available in the market. The decision further denied three competing applications by CHUM Limited, Newcap Inc. and Craig Broadcast Systems Inc.

21.

The new Telemedia station in Calgary is among those that Standard applied to purchase in the context of the current transactions. Standard then proposed to sell the station immediately to 3937844. As indicated earlier, the parties assigned a value of $2.8 million to the new FM station in Calgary based on the estimated sunk costs by the time of the launch. Telemedia is selling the station to Standard for $2.8 million, and Standard is selling the station to 3937844 for the same $2.8 million price. The Commission concludes that neither Telemedia nor Standard is making a profit on the sale.

22.

However, in this case, the sale of the Calgary FM station so shortly after a competitive licensing hearing could raise concerns about the integrity of the Commission's licensing process. The Commission raised this concern in Notice of Public Hearing CRTC 2001-10-4, 4 October 2001, where it stated:

The Commission notes that when a licence is sold within a relatively short time of its issuance, it generally examines the circumstances surrounding the transaction. It may address different approaches including the surrender of the new licence.

23.

In reply to this concern, Standard submitted that the Commission would not be justified in asking for the licence to be surrendered given that Telemedia has made significant investments and taken steps toward the launch of the station. For its part, 3937844 undertook to fulfil all of the commitments that Telemedia made with respect to the new station, including the commitment to operate the new station in the smooth jazz format.

24.

The Commission notes that the sale of this new station is but one component of a series of much larger transactions in which Telemedia is selling all of its broadcasting holdings across Canada. It also notes that 3937844 will assume all commitments made by Telemedia in the licence application for the new Calgary station, including the commitment, imposed as a condition of licence, to operate the station in a smooth jazz format. The Commission therefore considers that the new station, even under different ownership, will provide Calgarians with a new programming format, and that the community and the broadcasting system will benefit from the Canadian talent development initiatives proposed in Telemedia's application for a new licence.

25.

A Calgary station will also provide 3937844 with an urban station to support the other Alberta stations it is acquiring, all of which are located in small communities. The Commission further notes that it received no interventions opposing the applications. For these reasons, the Commission has decided to approve the transactions involving the new Calgary station first licensed to Telemedia.

Secretary General

Appendix to Broadcasting Public Notice CRTC 2002-19

List of purchased assets approved in Decisions CRTC 2002-91 to 2002-93 by licensee

Standard Radio Inc.

Edmonton (St. Albert) AB: CFMG-FM

Dawson Creek BC: CJDC, CJDC-TV

Fort Nelson BC: CKRX-FM

Fort St. John BC: CKNL, CHRX-FM, CHRX-FM Radio Network

Golden BC: CKGR

Kelowna BC: CKBL, CHSU-FM

Kitimat BC: CKTK

Nelson BC: CKKC

Osoyoos BC: CJOR

Penticton BC: CJMG-FM, CKOR, CKOR Radio Network

Prince Rupert BC: CHTK

Princeton BC: CIOR

Revelstoke BC: CKCR

Salmon Arm BC: CKXR

Summerland BC: CHOR

Terrace BC: CFTK, CJFW-FM, CFTK-TV

Trail BC: CJAT-FM

Vernon BC: CICF

Hamilton ON: CKOC, CHAM, CKLH-FM

London ON: CKSL, CJBK, CJBX-FM, CIQM-FM

Pembroke ON: CHVR-FM

St. Catharines ON: CKTB, CHTZ-FM, CHRE-FM

Toronto ON: CJEZ-FM, CJEZ-DR-1 (Digital Radio)

Rogers Broadcasting Limited

Orillia ON: CICX-FM

North Bay ON: CKAT, CKFX-FM, CHUR-FM

Sault Ste. Marie ON: CHAS-FM, CJQM-FM, CIRS

Sudbury ON: CIGM, CJRQ-FM, CJMX-FM

Timmins ON: CKGB-FM, CJQQ-FM

Toronto ON: CJCL, CJCL-DR-2 (Digital Radio), Prime Time Sports Radio Network

3937844 Canada Inc., a subsidiary of Newcap Inc.

Athabasca AB: CKBA

Blairmore AB: CJPR

Brooks AB: CIBQ

Calgary AB: New FM station approved in Decision CRTC 2001-172

Cold Lake/Grand Centre AB: CJCM

Drumheller AB: CKDQ

Edson AB: CJYR

High Prairie AB: CKVH

Hinton AB: CIYR

St. Paul AB: CHLW

Slave Lake AB: CKWA

Stettler AB: CKSQ

Wainwright AB: CKKY

Westlock AB: CFOK

Wetaskawin AB: CKJR