ARCHIVED -  Decision CRTC 97-86

Decision

Ottawa, 27 February 1997

Decision CRTC 97-86

Genex Communications inc.
Québec, Quebec - 199608478

Acquisition of assets

Following a Public Hearing in Montréal beginning on 2 December 1996, the Commission approves the application by Genex Communications inc. (Genex) for authority to acquire the assets of the radio programming undertaking CHOI-FM Québec from Les Entreprises de Radiodiffusion de la Capitale inc. (ERC), and for a broadcasting licence to continue the operation of this undertaking.

The Commission will issue a licence to Genex, expiring 31 August 2002, upon surrender of the current licence. The licence will be subject to the same conditions as those in effect under the current licence, as well as to any other condition specified in this decision and in the licence to be issued.

The licence term granted herein, while less than the maximum of seven years permitted under the Broadcasting Act, will enable the Commission to consider the renewal of this licence in accordance with the Commission's regional plan and to better distribute the workload within the Commission.

Parties to the transaction

The voting shares of the purchaser, Genex, are held as follows: Patrice Demers, 60%; Les Entreprises Octave inc., 20%; and Télémédia Communications inc. (Télémédia), 20%.

Les Entreprises Octave inc. is controlled by Jean Morin who has considerable experience in advertising, media and business, and a thorough knowledge of the Québec area and its stakeholders. He will serve as strategic adviser to CHOI-FM on marketing and programming matters.

Mr. Demers, who has extensive knowledge of the radio industry, will be the president of Genex. He is a former employee of Télémédia, having held the positions of controller and Vice-President (Control and Administration) of Télémédia Communications Québec.

The vendor, ERC, is owned by Télémédia. Télémédia is, in turn, controlled by Philippe de Gaspé Beaubien through Télémédia inc., a Canadian company active primarily in broadcasting, the publication of consumer magazines and weekly newspapers, and promotional and marketing services.

Background

In Decision CRTC 95-119 dated 27 March 1995, the Commission approved the transfer to Télémédia of all issued and outstanding shares of ERC, which was then licensee of CHRC and CHOI-FM Québec. Following that transaction, Télémédia obtained exclusive control of ERC and, thereby, of CHOI-FM. Télémédia's common ownership of CITF-FM Québec was contrary to the Commission's longstanding policy against the common ownership of two radio broadcasting undertakings of the same class serving the same market in the same language. Accordingly, the Commission required that an application be filed, within six months of the date of the decision, for authority to transfer the ownership or effective control of CHOI-FM to a third party. In Decision CRTC 95-120, also dated 27 March 1995, the Commission renewed the CHOI-FM licence for six months, and advised Télémédia that, if it was unable to file such an application within the specified period, it would be required to place CHOI-FM under independent administration until a decision was issued by the Commission. In the period since September 1995, CHOI-FM has been administered by Price Waterhouse under a contract filed with, and approved by, the Commission. The current application to acquire the assets of CHOI-FM was filed in response to the obligation imposed in Decision CRTC 95-120.

With regard to this application, the vendor informed the Commission at the hearing that: [TRANSLATION]

... it has been public knowledge that CHOI-FM was for sale, and we actively pursued our efforts to find a buyer. We responded with interest and diligence to all groups showing an interest in the purchase. We also solicited groups that were already active in broadcasting in the province of Quebec. Finally in late May 1996, we received two formal offers to purchase.

Télémédia chose the offer by Patrice Demers and Jean Morin because it was more advantageous from a financial standpoint, more viable, and more acceptable according to CRTC criteria.

The transaction

The purchase price is $2 million. Total financing, including an amount necessary to keep the station in operation, is $2,505,000. Télémédia will directly finance 66% of the purchase price, or 52% of the total financing. Télémédia will also serve as guarantor for $1 million in bank loans contracted by the applicant. Télémédia will thus provide financial backing, directly and indirectly, and through guarantees and bank undertakings, 92% of the total cost of the transaction.

Commission concerns

In view of Télémédia's competitive position as a broadcaster in the Québec market, the Commission sought to determine whether Télémédia, despite its position as a minority shareholder of Genex, would be capable of exercising de facto control over the applicant. The Commission examined in particular Télémédia's role in the approval of the operating budget, and in the financing of the transaction.

One of the key areas in examining de facto control and decision-making power within an undertaking is the implementation of the operating budget. The Commission inquired at the hearing about Télémédia's involvement in the preparation of the station's operating budget. More particularly, the Commission sought to determine whether Mr. Demers was required to obtain Télémédia's approval of the budget he prepared.

When questioned in this regard, Télémédia replied: [TRANSLATION]

Approval, no.... I want to stress that. We are here really as financial partners. Our aim is simply to ensure that CHOI's financial performance will be sufficient, firstly, to pay Télémédia ... and secondly, to hope simply that the 20% it agreed to take in consideration of the transaction is protected. It is in that context that our interests should be gauged.

The amount of financing provided by Télémédia raises concerns regarding the ownership of the station should Genex be unable to meet its financial obligations. Indeed, under certain circumstances, a minority shareholder could be perceived as wielding considerable amount of leverage, or even control, over a broadcasting undertaking, with the result being an unacceptable level of dependence. The Commission thus notes the following commitment by Télémédia at the hearing on this issue: [TRANSLATION]

We want to state to the Commission that, if it approves this transaction, and if, despite efforts to effect a recovery, future operating losses are such that Télémédia must take back the station, Télémédia formally commits to put the station up for sale immediately in order to comply with the Commission's policy on multiple ownership.

In considering this transaction, the Commission has taken the above commitment into account. It has also taken account of the fact that this approval will end the climate of uncertainty that has prevailed since 1995 regarding the future of CHOI-FM, and that such approval will enable Télémédia to satisfy the requirement imposed by the Commission in Decision CRTC 95-120. In addition, the Commission considered the fact that approval will allow the entry of a new broadcaster operations in the Québec market. Accordingly, despite the concerns mentioned above, the Commission considers that the proposed acquisition is in the interests of the community and the Canadian broadcasting system.

On the other hand, the Commission emphasizes that its deliberations concerning the issue of de facto control of this station were conducted againsts the backgroud of both the policy on common ownership and the particular circumstances surrounding this application. For these reasons, it would be inappropriate to draw conclusions that this decision has any implications in other contexts, such as those in which the foreign participation in the ownership of a broadcasting undertaking might be an issue.

Benefits

Because the Commission does not solicit competing applications for authority to transfer effective control of broadcasting undertakings, the onus is on the applicant to demonstrate to the Commission that the application filed is the best possible proposal under the circumstances, taking into account the Commission's general concerns with respect to transactions of this nature.

According to the applicant, several intangible benefits will result from this transaction. Genex submitted that it will bring to CHOI-FM the administrative and financial stability, and the new impetus that the station needs to ensure its financial survival and the maintenance of a diversified and complementary local programming service. It added that the transaction will see the formation of a new group of young, enterprising, capable and experienced broadcasters motivated by the desire to operate an FM radio station that is strong, creative, of high standard, involved in its community, and responsive to the expectations of its listeners and the community. In addition, it will rectify the situation with regard to the common ownership policy. Last, the applicant indicated it will contribute $25,000 representing the indirect costs of initiatives designed to encourage local musical and artistic talent.

Among the proposed tangible benefits, the Commission notes the applicant's commitment to support Canadian talent development through annual contributions of $8,000 to MusicAction, and $2,000 to Proscène for prizes in local competitions.

The Commission has assessed the benefits package identified by the applicant as flowing from this transaction and, in general, is satisfied that it is significant, and that approval of the transaction is in the public interest.

Other considerations

The transaction provides for the reimbursement to Télémédia, over the first three years, of the interest accrued on the balance of the selling price in the form of air time on CHOI-FM. Télémédia will compete as a broadcaster in the same market; the Commission therefore asked Télémédia at the hearing whether a condition of licence restricting any promotions broadcast by CHOI-FM to products of its magazine division would be counter to the interpretation of the agreement negotiated between Genex and Télémédia. Télémédia stated that this would not be a problem. Accordingly, it is a condition of licence that any promotion of Télémédia products or services broadcast by CHOI-FM be limited to products or services other than those related to broadcasting.

It is a condition of licence that the station not operate in the specialty format, as defined in Public Notice CRTC 1995-60 or as modified from time to time by the Commission.

It is a condition of licence that the licensee adhere to the guidelines on gender portrayal set out in the Canadian Association of Broadcasters' (CAB) "Sex-Role Portrayal Code for Television and Radio Programming", as amended from time to time and accepted by the Commission. The application of the foregoing condition of licence will be suspended as long as the licensee remains a member in good standing of the Canadian Broadcast Standards Council.

It is also a condition of licence that the licensee adhere to the provisions of the CAB's "Broadcast Code for Advertising to Children", as amended from time to time and approved by the Commission.

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. In keeping with the Commission's policy, it encourages the licensee to consider employment equity issues in its hiring practices and in all other aspects of its management of human resources.

This decision is to be appended to the licence.

Allan J. Darling
Secretary General

Date Modified: 1997-02-27