Bell to acquire rival Astral Media

The Bell logo is seen on the company's building in downtown Montreal February 9, 2011....

The Bell logo is seen on the company's building in downtown Montreal February 9, 2011. (REUTERS/Shaun Best)

Euan Rocha, Reuters

, Last Updated: 2:36 PM ET

TORONTO - Bell Canada’s parent has agreed to buy Astral Media, its largest content provider, in a $3 billion deal to lock up more of the programming carried over its media platforms and expand its presence in French-speaking Quebec.

Complementing BCE Inc’s $1.3 billion acquisition of CTV last year, the deal announced on Friday highlights the company’s drive to control the costs of the content distributed through its cable, internet and telecom properties.

BCE’s strategy is part of a global trend - the growing popularity of tablet computers and smartphones as platforms to view content has blurred the lines separating telecom carriers, media and cable companies. That has forced providers to venture outside their traditional domains to boost revenues and win a competitive edge.

“All telephone companies are trying to reinvent themselves,” said Macquarie analyst Greg MacDonald. “Carriers, cable and telephone companies are buying content providers, and even going so far as to buy the content itself.”

BCE, already Canada’s largest telecom provider, will acquire more than 20 television services operated by Astral, including HBO Canada, the Movie Network, Canal Vie and Disney Junior. In radio, the deal gives BCE 80 stations, including Virgin Radio, EZ Rock and Boom.

In an important aspect of the deal, Astral positions BCE to compete more effectively against Quebecor Inc, which owns a rich array of French-language content and rival telecom company Videotron that operates in the province of Quebec.

Astral - based in Montreal along with Quebecor - has a strong presence in Quebec, Canada’s francophone heartland. Its assets will enable BCE to raise its profile in one of Canada’s biggest media markets and broaden out its national footprint.

“Bell’s acquisition of Astral firmly establishes our company as Quebec’s media leader,” said BCE Chief Executive George Cope. “The acquisition also represents content cost certainty for Bell, as Astral represents Bell’s single largest content cost in our TV business today.”

Astral also owns digital media assets and nearly 10,000 outdoor advertising signage locations spread across Quebec, Ontario and British Columbia. It employs about 2,800 people across Canada, with about half of them located in Quebec.

LARGE PREMIUM

BCE is buying all of Astral’s Class A non-voting shares for $50 per share, a nearly 40% premium to Thursday’s close on the Toronto Stock Exchange.

BCE will fund the deal through a combination of cash and its common equity, with BCE retaining the right to replace shares with cash at closing.

BCE will also acquire all Class B subordinate voting shares for $54.83 per share, or about $151 million, and all special shares for $50 million. Including the assumption of debt, the deal values Astral at about $3.38 billion.

Bell said the earnings multiple it is paying for Astral is in line with its valuation for the CTV deal, which closed last year. Astral will immediately boost Bell’s earnings and free cash flow, the company said.

“The acquisition is consistent with our capital markets strategy of supporting dividend growth, while maintaining our credit ratings,” said Cope.

The company will integrate Astral into the Bell Media unit, created in April 2011 following the CTV acquisition. Astral’s contribution will boost Bell Media’s annual earnings before interest, taxes, depreciation and amortization to more than $850 million.

Astral’s board of directors has unanimously approved the transaction and advised Astral shareholders to vote in favour of the deal.

QUESTIONS LINGER

As with the CTV deal, BCE will need to win clearance from Canada’s Competition Bureau and the Canadian Radio-Television and Telecommunications Commission, the industry regulator.

“We’re not foreseeing that there’s going to be any issues that arise in those proceedings,” said Cope, indicating that the company may sell some radio stations to comply with CRTC rules on concentration in some markets.

To be sure, some analysts think the Astral acquisition is not as compelling for BCE as the CTV acquisition was.

“We will give Bell credit for the hedge on content fee inflation that comes with this acquisition, but we find it difficult to see how revenue synergies will result,” MacDonald said.

Canaccord Genuity analyst Dvai Ghose also questioned the logic behind BCE’s play to acquire more content. The CRTC last year ruled that vertically integrated providers such as BCE must offer competitors content across all platforms at a reasonable price.

With that mind, investing in its broadband network in Quebec may have made more sense for BCE that investing in a content provider like Astral, Ghose said.

BCE shares fell 16 cents to $39.90 in afternoon trading on the Toronto Stock Exchange, while those of Astral jumped $12.30 to $48.55.

(Reporting By Euan Rocha, Susan Taylor in Toronto and Randall Palmer in Ottawa; Editing by Janet Guttsman and Frank McGurty)


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