ARCHIVED -  Decision CRTC 99-120

Decision

Ottawa, 28 May 1999

Decision CRTC 99-120

Câble-Axion Québec inc.

Pont-Rouge, Saint-Agapit, Saint-Damase-de-l'Islet, Saint-Georges-de-Beauce, Saint-Philémon, Saint-Stanislas and Sainte-Marie-de-Beauce, Quebec - 199805470Compton, Dixville and Eastman, Quebec - 199805488

Applications processed by
Public Notice CRTC 1999-13
dated 15 January 1999

Summary

The Commission denies the applications for corporate reorganization because the proposed structure would not meet the terms of the Direction to the CRTC (Ineligibility of Non-Canadians). In view of the control that could be excercised by Groupe Québectel inc., a current shareholder, the Commission has determined that neither the applicants nor their parent corporations would be controlled unequivocally by Canadians following the proposed reorganization.

1. Câble-Axion Québec inc. (Axion-Québec) and Câble-Axion Digitel inc. (Axion-Digitel) operate small cable distribution undertakings in the Eastern Townships and Eastern Quebec. The current applications would change the licensees' ownership and the way they are controlled.

2. The Commission considered the shareholder structure of Groupe Québectel inc. (Groupe Québectel). Groupe Québectel is 50.5% owned by Anglo-Canadian Telephone Company of Montreal Inc., a wholly-owned subsidiary of the U.S. telecommunications firm GTE Corporation. The Commission considered the applications with reference to the Direction to the CRTC (Ineligibility of Non-Canadians) P.C. 1997-486 as modified by P.C. 1998-1268 (the Direction). First, the Commission considered the issue of whether the applicants met the criteria to be deemed qualified corporation as defined in the Direction. It then considered the matter of de facto control as contemplated in section 3 of the Direction, which reads:

Where the Canadian Radio-television and Telecommunications Commission determines that an applicant is controlled by a non-Canadian, whether on the basis of personal, financial, contractual or business relations or any other considerations relevant to determining control, other than the beneficial ownership and control of the voting shares of a qualified successor by a Canadian carrier or its acquiring corporation, the applicant is deemed to be a non-Canadian.

Qualified corporation

3. The proposals included transferring ownership of Axion-Québec to a newly created entity known as Consortium Axion-Québec inc. (Consortium Québec). Also requested was the inclusion of a new shareholder, the Fonds de solidarité des travailleurs du Québec (the Fund).

4. If the proposals were approved, the largest shareholders in Axion-Québec would be Groupe Québectel with a direct interest of 20% and an indirect interest of 22.5% for a total combined interest of 42.5%. For its part, the Fund would hold 40.2% of the combined direct and indirect voting shares. As for Consortium Québec, Groupe Québectel would hold the maximum 33.33% interest permitted for a non-Canadian corporation, and the Fund would hold the largest direct interest, 41%.

5. Novacap inc. (Novacap) would still be the main shareholder of Axion-Digitel with a combined direct and indirect interest of 32.9%. Groupe Québectel would be in second place with a direct interest of 20% and an indirect interest of 11.8% for a total combined interest of 31.8%. Consortium Câble-Axion Digitel inc. (Consortium Digitel) would still be the parent corporation of Axion-Digitel.

6. After considering the applicants' proposals relating to ownership percentages, the Commission has concluded that the applicants fall within the definition of a qualified corporation.

De facto control

7. After the proposed reorganization, the Commission notes that effective control of the licenseees would be changed. In fact, with the proposed composition of the boards of directors, neither Novacap nor any other shareholder would have a majority position.

8. The boards of directors of the licensees and their parent corporations would be composed of two directors and one observer for each of Groupe Québectel, Novacap and the Fund. Paul Girard, a minority shareholder with management duties, would also have a representative on the boards.

9. All decisions would require the agreement of at least two shareholders, leaving more room for them to influence one another. Also, the presence of observers would raise the probable level of influence of Groupe Québectel, the Fund and Novacap.

10. The Commission examined the issue of de facto control of the licensees by Groupe Québectel. In particular, it considered Groupe Québectel's active role in comparison with those of the other two main shareholders. Novacap and the Fund are institutional investors with no expertise in the cable business, and usually they do not participate actively in the operation of the companies in which they invest.

11. The Commission has also reviewed the investment levels of shareholders in the licensee companies. It notes that Groupe Québectel would remain the shareholder with the largest investment in these undertakings, taking all forms of investment together, with 22.4% nearly 7% more than the Fund.

12. Conversely, in return for its financial participation in Consortium Québec, the Fund requested a "piggyback" provision, giving it the right to dispose of all of its shares if Group Québectel were to lose control. The Fund stated that it [translation] "considers that Groupe Québectel plays an important role in the operation of the Société" and that it was "essential for the Fund to obtain such a piggyback clause, otherwise the Fund could not invest in the Société".

13. Based on its analysis of the situation, the Commission found that the reorganization would place Groupe Québectel in a position of control for the following reasons:

· its combined direct and indirect interest in both licensees would make it the largest shareholder in Axion-Québec and the second-largest shareholder in Axion-Digitel, after the passive investor Novacap;

· Groupe Québectel's level of investment would make it the largest investor, after the bank;

· the new dynamics of the boards of directors would increase Groupe Québectel's influence because the two other main shareholders are institutional investors;

· the piggyback clause required by the Fund with respect to Consortium Québec, whereby it would have the right to dispose of all its shares if Groupe Québectel were to lose control, confirms the importance of the role of Groupe Québectel.

14. The Commission is of the view that these factors, taken together, are highly compelling. It has concluded that neither the applicants nor their parent corporations would be controlled unequivocally by Canadians after the proposed reorganization. The Commission therefore denies the licensees' applications because the licensees do not meet the requirements of section 3 of the Direction.

This decision is available in alternative format upon request, and may also be viewed at the following Internet site:

www.crtc.gc.ca

Secretary General