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Decision
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Ottawa, 3 March 1988
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Decision CRTC 88-135
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Amicus Communications Inc.
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Windsor, Ontario - 873030100 - 873031900
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Following a Public Hearing in Toronto on 7 December 1987, the Commission approves the application for authority to transfer effective control of Amicus Communications Inc. (Amicus), licensee of CKLW and CKLW-FM Windsor, through the transfer of 50% of its issued voting common shares from Mr. K. Campbell (20%), Mr. R. O'Brien (19%), Mr. M. Rinaldo through Platoon Communications Corporation (6%), and Mr. D. Beallor (5%) to CUC Limited (CUC), which already holds 50% of the voting common shares of the licensee. CUC will now have 100% control of Amicus.
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Background
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In Decision CRTC 85-158 dated 29 March 1985, the Commission approved applications by Mr. Keith Campbell, representing a company to be incorporated (now Amicus) for authority to acquire the assets of CKLW and CKLW-FM Windsor, Ontario from Russwood Broadcasting Limited and for broadcasting licences to continue the operation of these radio stations. The licences expire 31 March 1990.
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In its decision, the Commission noted that ownership of the company to be incorporated would include participation by CUC which, with 50% of the total vote, would hold negative control. CUC has extensive broadcast holdings in Ontario, including ownership of the cable television undertaking serving Windsor. The remaining 50% of Amicus' voting shares was to be owned by four other shareholders: Mr. Keith Campbell (20%), Mr. Robert O'Brien (19%), Mr. Michael Rinaldo through Platoon Communications Corporation (6%), and Mr. Denis Beallor (5%).
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In June 1986, Mr. Campbell submitted to the Commission the incorporation documents for Amicus as well as information showing that Mr. Rinaldo's 600 common voting shares (6%) through Platoon Communications Corporation were being held by Amicus in trust. This information placed the status of effective control of Amicus in question because it appeared that non-CUC shareholders no longer held 50% of the licensee's voting shares. In response to a letter from the Commission requesting clarification concerning the control of the trust as well as the licensee, Amicus subsequently submitted information in a letter dated 2 September 1986 showing that the trust was now a trustees' employee share purchase plan with 11% of the common stock, that Messrs. O'Brien and Campbell had retained their original holdings (totalling 39%), and that CUC Limited continued to hold 50% of the shares.
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Since control of the employee share purchase plan was critical for the purpose of determining whether control of the licensee had changed, the Commission again wrote to Amicus on 18 September 1986 requesting further clarification on this matter and on the implications for control related to the voting of the Amicus shares in light of Decision CRTC 85-158. In a letter dated 17 October 1986, Mr. Peter Howe, Counsel for CUC, replied to the Commission's 18 September letter, stating that "a majority of the trustees are non-CUC Limited related." On 14 January 1987, Mr. Howe forwarded to the Commission the text of the proposed employee share purchase plan.
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Subsequently, in letters dated 1 May and 28 May 1987, Mr. Robert Short, Deputy Chairman of CUC, advised the Commission that Messrs. Campbell and O'Brien would cease to be shareholders as of 2 June 1987, and that
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In accordance with the Radio Regulations, 1986, to the Broadcast Act (Canada) we are notifying the Commission of the transfer of shares.
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The Commission's Revised Conditions of Licence to which Amicus is subject provide, among other things, that prior Commission approval is required for any transactions which will, directly or indirectly, result in a change of or materially affect the effective control of the licensee. The Revised Conditions further provide that effective control of the licensee shall be deemed to be materially affected where, among other things, a person obtains control of a sufficient amount of the voting securities of the licensee so as to result in control of not less than 10% of all issued voting securities thereof by that person.
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Over the years the Commission has developed general policy guidelines for dealing with applications involving transfers of the ownership or effective control of broadcasting undertakings. Under these guidelines, the first test an applicant must meet is to demonstrate that the proposed transaction will yield significant and unequivocal benefits to the communities served by the broadcasting undertakings in question and to the Canadian broadcasting system as a whole, and that approval is in the public interest.
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On 12 June 1987, the Commission asked Amicus to explain how the transactions conform with the requirements of Decision CRTC 85-158 and to the conditions of its licence. Moreover, since control of the licensee was apparently changing, the Commission asked Amicus to outline the significant and unequivocal benefits associated with the transactions.
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Subsequently, in a letter to the Commission dated 14 July 1987, Mr. Short formally requested approval of the Campbell and O'Brien share transfers.
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The Hearing
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i) The Share Transfers
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At the hearing, Mr. Charles Allen, President of CUC, explained that although the licensee was set up as authorized, Mr. Beallor, who held 500 shares (or 5%), had withdrawn his participation in Amicus in the fall of 1985, and Mr. Rinaldo, who held 600 shares (or 6%) through Platoon Communications Corporation, had withdrawn his participation in the winter of 1986. Both these shareholders had committed part of the initial financing for the licensee's radio stations, CKLW and CKLW-FM, and CUC had repaid their advances and injected further money into Amicus to permit the acquisition of their stock which was to be held in trust.
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According to Mr. Allen, the intent was to find other investors for Amicus who would acquire these shares. In the interim, Messrs. Campbell and O'Brien would continue to manage the stations and CUC would continue to fund all of the stations' financial requirements. As no actual trust agreement was ever put in place, however, and as no outside trustee was appointed, the shares were simply held by Amicus. Mr. Allen stated that these shares were never voted, that effectively the shares were "warehoused", and that CUC continued at that time to hold negative control of Amicus.
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At the hearing, Mr. Allen explained that discussions with respect to structuring an employee share purchase plan for the outstanding shares were initiated when it became evident by the end of the summer of 1986 that Amicus would not be able to arrange new outside investors. According to Mr. Howe, however, "the plan was never finalized". As a result, Amicus continued to hold the shares in trust for potential share purchasers.
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With respect to events surrounding the transfer of the shares held by Messrs. Campbell and O'Brien, Mr. Allen explained that, during 1986, CUC became very concerned about the performance of Amicus, which was losing money "at an annualized rate of one million dollars" and continuing to experience high staff turnover. However, CUC was unable to compel management to act on its suggestions because of its negative control. Eventually, in CUC's view, it became necessary to make changes in senior management. These changes were coincident with the transfer of O'Brien's and Campbell's shares to CUC on 2 June 1987. When asked why CUC chose to acquire the shares at that time rather than place them in a trust or wait for the Commission's approval, Mr. Allen replied:
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Maybe this is an extremely unique situation but if CUC puts them into trust ... at that point in time CUC is the only shareholder who is infusing - in essence it is the only shareholder. So, whether we own 50% of a 100% and the other 50% is off on the left somewhere, ultimately we are the only player who's left at the table.
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In CUC's view, its acquisition of the O'Brien and Campbell shares was the first transaction involving Amicus' shares that required the Commission's prior approval. Mr. Allen did state, however:
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If in the past, CUC and/or its associates have in any way imposed upon the CRTC's goodwill and regulatory process, then we apologize and give you an absolute undertaking today that it will not happen again.
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Furthermore, CUC undertook "to report [to the Commission] the results of our efforts in Amicus on a regular semi-annual basis", over and above any other reporting which it may be required to submit.
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ii) Benefits
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At the hearing, the applicant outlined the quantifiable benefits that would arise as a result of these share transfers. In this respect, Mr. Allen highlighted the financial stability which CUC would provide on a long-term basis for CKLW and CKLW-FM. He noted that CUC had supported the stations during the period of poor financial performance without any cuts in staff or service and that CUC's financial commitment to date totals $4.4 million.
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He stated that "CUC has always taken a long-term view with respect to its investments and has the confidence in its vision to commit to long-term support of Amicus". CUC estimated that up to an additional $1 million will be required before Amicus' revenue position can be improved.
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Mr. Allen then stated that Amicus recognizes the need for ongoing research "to keep a pulse of the programming needs and interests of our listeners", and so is committed to a research program for which it expects to spend approximately $250,000 over the next five years.
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Further, the applicant made a commitment to spend another $10,000 per year per station for Canadian talent development for a total of $100,000 over the next five years. This commitment is in addition to the original $50,000 commitment for Canadian talent development in Amicus' original licensing application.
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CUC has also initiated steps to produce video material featuring Canadian artists through Windsor Cable, its affiliated company. The applicant undertook to cross-promote Canadian talent in both operations, working together in its Talent for the Future project, and to simulcast live concerts.
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In addition to outlining the above quantifiable benefits associated with its acquisition of control of Amicus, the applicant listed "a number of benefits [which] while not quantifiable, are nevertheless equally, if not more important at both the staff and community levels". Of these, the "first and most significant is that new leadership for Amicus will provide the stability and sensitivity that to date have not been present". The applicant also noted that Amicus' new president, Mr. Terry Coles, who has extensive broadcasting management experience, is now a resident of Windsor, whereas previous management had commuted from Central Ontario.
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Other non-quantifiable benefits offered by the applicant include the fact that staff of the two Windsor radio stations will be able to participate in CUC's training programs, and that CUC's large base of operations in Ontario will enable movement of staff between operating centres.
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CUC also made a commitment to explore program-sharing arrangements between Amicus and CUC's other radio investments in Northern Ontario and to offer the video material produced by the co-operative efforts of Amicus and Windsor Cable to other Canadian cable operators.
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Finally, the applicant stated that, as "policy design and implementation will result from CUC authority and responsibility to define coherent direction for local management", approval of its application "will allow policy decisions to be made more expeditiously and efficiently than has been the case in the past".
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Mr. Coles outlined a nine-part "action plan" which is now being undertaken "to resuscitate the performance of the stations, rebuild staff morale and to fulfill the promise of performance". This plan involves development of new sales strategies to increase advertising revenues; a refocusing of the station's music presentation, on-air performance and approach to news and public affairs programming; reconfirmation of the two stations in the marketplace "taking into account the distinct nature of the AM and FM services and CRTC requirements"; investment in the previously-mentioned research program "which will assist in the positioning, programming and promotion of the stations for a distinctive flavour, identity and sound for both AM and FM services"; exploration of new concepts to attract new audiences, including co-operative programming ventures; co-operation between Windsor Cable and CKLW radio in such events as charity fund-raising drives; the recent creation of an advisory board of prominent Windsor residents to "advise CUC on the operations of the radio stations and the cable company"; the improvement of financial reporting and control relationships; and "a new drive for better selling ... in both Windsor and Detroit with clear, consistent advertiser/client benefits".
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Conclusion
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The Revised Conditions of Licence to which Amicus' licence and those of all other licensed broadcasters are subject clearly provides that prior Commission approval is required for any transaction resulting in a change of effective control of the undertaking. According to the terms of the Revised Conditions of Licence, in the Commission's opinion, change in the effective control of Amicus occurred at the time that the shares of Messrs. Beallor and Rinaldo (through Platoon Communications Corporation), amounting in total to 11% of the licensee's voting securities, were effectively "warehoused" without a formal trust agreement in place, thereby placing CUC in a position of de facto control of the licensee.
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If there existed any ambiguity at that time as to the significance of the transactions involving the Beallor and Rinaldo shares, the Commission considers that this would no longer have been the case in the summer of 1986 when, in CUC's own words, it became evident that Amicus was unable to arrange new outside investors for the shares.
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The Commission finds inexcusable the failure of CUC, itself an experienced broadcaster, to submit an application for prior Commission approval of this transfer of effective control, in accordance with the conditions of Amicus' licence. Such apparent disregard for the Commission's requirements in this respect serves to jeopardize the integrity of the licensing process. In the absence of significant mitigating factors, it would be consistent with Commission policy concerning transfers of ownership for it to deny this application.
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The Commission, however, must decide, on a case by case basis, whether public considerations or exceptional circumstances warrant special consideration in any matter before it. While the Commission is unable to condone CUC's actions in this particular matter, it is obliged to consider, first and foremost, the interests of the Windsor community. In this respect, the Commission notes that, in Decision CRTC 85-158, CKLW-FM was issued an experimental FM licence in light of the realities of the Windsor market, and recognizes that CUC has provided on-going and significant financial support in order to maintain the operation of this local radio service in the face of overwhelming competition from Detroit radio stations that are not subject to the same regulatory requirements. It is in the interest of ensuring the continuation of this service to the Windsor community that the Commission has decided to approve this application.
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In reaching its decision, the Commission has also considered the significant and unequivocal benefits to the Windsor community arising from these transactions, and has determined that approval is in the public interest. In this regard, the Commission has taken into account the firm commitments offered by CUC at the hearing, and the fact that CKLW and CKLW-FM will be managed by Mr. Coles, an experienced broadcaster who should be able to provide the stability and leadership necessary to meet the unique demands of the Windsor market.
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The Commission will follow with interest the effects of these transactions on the performance of CKLW and CKLW-FM and intends to review the licensee's implementation of its commitments at the time that these licences come up for renewal in 1990.
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Fernand Bélisle
Secretary General
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