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Ottawa, 10 June 1993
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Decision CRTC 93-200
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Météomédia Inc.
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Montréal, Quebec - 920974300
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Transfer of control authorized
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Following a Public Hearing held in Moncton beginning on 17 February 1993, the Commission approves the application for authority to transfer effective control of Météomédia Inc. (Météomédia), licensee of the national specialty programming undertaking Météomédia/Weather Now. This transaction involves the transfer of all issued and outstanding shares of Lavalin Communications Inc. (Lavalin), currently held in trust by Trust Général du Canada, to Pelmorex Weather Network Inc. (Pelmorex).
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The Commission licensed the Météomédia service in November 1987 (Decision CRTC 87-899). The undertaking began operation in September 1988. The service delivers continuous weather reports, via satellite on a discretionary basis, to affiliated cable operators for distribution on the basic service. The service consists of an English-language version (Weather Now) and a French-language version (Météo- média). The undertaking serves over six million subscribers through some 300 Canadian cable undertakings. The current licence expires on 31 August 1993.
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The Parties
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Météomédia is a wholly-owned subsidiary of Lavalin. The shares in Lavalin are currently held by Trust Général du Canada, which holds them in trust for a group of bondholders which acquired control of the shares following the bankruptcy of the companies of Groupe Lavalin Ltée of Montréal. In September 1992, the Commission authorized Trust Général du Canada to take over interim management of Météomédia.
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Pelmorex is a wholly-owned subsidiary of Pelmorex Communications Inc. (PCI), which, in turn, is indirectly controlled by Mr. Pierre L. Morrissette through Pelmorex Management Inc. (PMI). Mr. Morrissette also holds indirect control of Pelmorex Broadcasting Inc., which is the licensee of several AM and FM radio stations in Ontario. The Commission notes that, following approval of this application, the applicant intends to merge Météomédia and Lavalin with Pelmorex.
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Previous transaction
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In Decision CRTC 92-453 dated 6 July 1992, the Commission denied an application by Pelmorex for authority to acquire the assets of Météomédia. In that decision, the Commission referred to Public Notice CRTC 1989-109 dated 28 September 1989, in which it outlined the principal elements it considers when assessing applications for the transfer of ownership or control of a broadcasting undertaking. Because the Commission does not solicit competing applications in these circumstances, and thus has only one proposal to consider, the Commission reiterated that the onus is on the applicant to demonstrate to the Commission that the application filed is the best possible proposal in the circumstances, taking into account the Commission's general concerns regarding transactions of this kind.
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After examining all aspects of that application, the Commission determined that it did not represent the best possible proposal in the circumstances. The Commission noted that, in view of the financial burden that would have been created by the proposed purchase, the applicant would not have been able to honour its obligations and remain profitable, and that, as a result, it would have been obliged to increase rates. In this regard, the Commission reiterated its long-standing policy that subscribers should not be required to pay higher fees merely because the ownership or control of a subscription-based undertaking has changed hands.
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The Commission has assessed the present application in the light of the concerns raised in Decision CRTC 92-453 and the other factors that the Commission considers when assessing applications of this kind. The onus is on the applicant to demonstrate to the Commission that the proposed transfer will yield significant and unequivocal benefits for subscribers and the Canadian broadcasting system as a whole and that it would be in the public interest.
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In particular, the Commission must be satisfied that the benefits, both those that can be quantified in monetary terms and others that may not easily be measured in terms of dollar value, are commensurate with the size of the transaction and take into account the responsibilities to be assumed, the characteristics and viability of the broadcasting undertakings in question, and the scale of the programming, management, financial and technical resources available to the purchaser.
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Financial aspects
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The overall purchase price of the transaction is $24,728,000. Excluding licensing fees for the head-end interface, the undertaking is valued at $21,950,000. Financing involves two stages: bridge financing in the form of loans, to be followed by permanent financing through the sale of PCI shares to private investors. Bridge financing has enabled Pelmorex to discharge Lavalin from its obligations to its creditors and bondholders. As a result, Pelmorex has become the sole Lavalin creditor, transferring to it the equivalent of the $24,728,000 purchase price. This stage has also permitted Lavalin to redeem the shares of its minority shareholders, including the 20% interest held by non-Canadians. In return, Trust Général du Canada made a commitment to transfer all Lavalin shares to Pelmorex on condition that the Commission approve this application.
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Owing to the success of the $17 million share issue to private investors and the reduction of its financial expenses in comparison with the previous transaction, Pelmorex maintained that it will be able to honour all of its commitments without increasing its rates. In fact, Pelmorex proposed to reduce Météomédia's wholesale rate from the current level of $0.24 or $0.25, as applicable, to the former level of $0.23, and to maintain it at that level for the next seven years. Pelmorex also stated that it would inject $2.7 million raised from private investments into its radio operations to strengthen their position.
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Among the principal factors contributing to the reduction of Pelmorex's financial expenses, the Commission notes the financial characteristics of the transaction leading to a decrease in the purchase price of over $6 million; the substantial decline in interest rates, which represents a savings of $8 million; and the projected expansion of the subscriber base by over 600,000 in the next seven years. Pelmorex also indicated that, compared with the previous transaction, the share financing proposed in the present transaction would raise an additional $6 million, and its debt load would be over $11 million less. While the Commission recognizes the unusual circumstances surrounding this transaction, it does not wish to encourage the practice of purchasers assuming the role of creditor to the company being acquired. In many instances, the purchaser's assumption of a creditor position to the acquired company, or the vendor, could signal an effective completion of the transaction prior to Commission approval. In any situation where such a transaction is even contemplated, the parties to the transaction may wish to review the matter with the Commission.
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During and after the hearing, the Commission requested and obtained further information regarding the impact that the proposed voting share issue to private investors, and the terms of the proposed shareholders' agreement (which is to be ratified upon closure of this transaction), would have on the control of PCI. Based on the subsequent filings and on certain amendments to the shareholders' agreement, which the private investors have consented to in writing, the Commission has been able to establish clearly that all parties intend to ensure that Pierre L. Morrissette will have control over Pelmorex and will retain control of PCI through PMI.
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The Commission also notes the terms of the shareholders agreement which would permit Pelmorex to make a public share offering in five year's time; the Commission also notes the commitment by Pelmorex to seek the prior approval of the Commission should such a share offering have the potential to alter the effective control of the undertaking.
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Proposed benefits
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Pelmorex proposed the same benefits in this application as in its previous application. Overall, the benefits represent an investment of $3,363,000 over five years. In Decision CRTC 92-453, the Commission noted its conclusion that, based upon its analysis of the proposed benefits, the tangible and intangible benefits, together, were commensurate with the size and nature of the transaction.
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The major initiative put forward by Pelmorex is the establishment of four regional weather offices covering Atlantic Canada, Ontario, the Prairie region, and British Columbia. The applicant stated that, by establishing these offices, it could provide more in-depth processing of weather reports, and replace half of its repeat programming with regional productions. This project represents an investment of $2.5 million. Other tangible benefits proposed include the addition of air-quality forecasts, improved graphic displays and higher-quality satellite images as well as the installation of ten automatic weather observation stations in the areas of Montréal, Toronto and Vancouver to provide more accurate reports.
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With regard to the intangible benefits, Pelmorex noted its expertise in operating radio undertakings and in satellite transmission, the repatriation of Météomédia to exclusive Canadian ownership, and the stability the applicant will bring to the undertaking following a lengthy period of uncertainty. Pelmorex also offered a commitment to develop a low-cost terminal to make its service more affordable for small cable undertakings. The applicant forecasts that this initiative will add at least 800 small undertakings serving approximately 280,000 subscribers to its list of affiliates over the next five years. Pelmorex also made a commitment to upgrade its weather advisory system by covering all forms of natural and other disaster and by providing safety instructions as required at the local, regional and national level.
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The Commission expects the applicant to ensure that all the $3,363,000 in expenditures included in its benefits package are made in accordance with the schedule outlined in the application. The Commission further notes that the applicant's commitment to maintain its wholesale rate of $0.23 per subscriber per month over the next seven years constitutes an important element of this application. In this regard, the Commission notes the commitment made by the applicant at the hearing to inform all affiliated cable undertakings in writing that it is lowering its wholesale rate.
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In addition, the Commission notes the applicant's commitment to maintain and upgrade the quality of the service offered by Météomédia by allocating the equivalent of 37% of its subscription and advertising revenues to programming. The programming expenditures projected in the application range from $7.7 million in the first year, to $8.7 million in the seventh year, for a total of $57 million over that period. The applicant added that these expenditures are minimum commitments, and that the amounts indicated will be allocated exclusively to Canadian programming.
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The Commission advises the applicant that, when considering Météomédia's next licence renewal, the Commission will review the commitments noted above relating to the wholesale monthly rate and programming expenditures for the purpose of setting new conditions of licence.
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Employment equity
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In Public Notice CRTC 1992-59, the Commission announced implementation of its employment equity policy. It advised licensees that, at the time of licence renewal or upon considering applications for authority to transfer ownership or control, it would review with applicants their practices and plans to ensure equitable employment.
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At the hearing, a Météomédia representative stated that the undertaking is currently preparing an employment equity program in collaboration with Labour Canada. Météomédia acknowledges that there is room for improvement, notably with regard to the representation of designated groups. Consequently, the Commission expects Météomédia to develop and implement, without delay, an affirmative action plan applicable to the entire organization covering not only hiring practices, but also all other aspects of human resources management. The Commission will review these issues at the time of Météomédia's next licence renewal.
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The Commission acknowledges the many interventions submitted in support of this application.
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Allan J. Darling
Secretary General
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