TORONTO Canada's Astral Media, owner of television, radio and outdoor-advertising assets, could be broken up and sold to several buyers, analysts said on Friday, after the country's broadcast regulator unexpectedly vetoed a takeover by BCE Inc.
Astral stock fell more than 15 percent in active afternoon trade of more than 4.5 million shares after the Canadian Radio-Television and Telecommunications Commission (CRTC) said on Thursday that the C$3 billion ($3 billion) deal would give too much market power to BCE, already Canada's biggest telecoms company and owner of numerous TV and radio assets.
The proposal, which faced fierce opposition from BCE competitors including Quebecor Inc and Rogers Communications, was not in the best interest of Canadians, the CRTC said.
"Our expectation is that Astral will undertake a strategic review given this decision and the desire of the controlling shareholders to sell the business," Scotiabank analyst Paul Steep said in a note to clients.
But the level of concentration that already exists within the Canadian cable and broadcasting arena, plus balance sheet concerns for some in the sector, have left most analysts doubting that a single buyer will emerge.
Steep, who cut his target price on shares of Astral to C$44 from C$50, pegs the media company's break-up value at about C$46 a share.
"We believe breaking up Astral and selling the pieces is a viable option for the company," RBC analyst Drew McReynolds said in a note. "Astral has one of the best asset mixes of any Canadian media company, and we see significant buying interest from both strategic and financial players for television, radio and outdoor assets."
Shares in Astral Media fell almost 20 percent at the market open on Friday and closed about 16 percent lower at C$39.51 on the Toronto Stock Exchange.
LITTLE SCOPE TO RESTRUCTURE
Canaccord Genuity analyst Aravinda Galappatthige said the CRTC ruling left little scope for BCE to restructure the deal via asset sales.
"The rejection of the transaction has been backed up by a plethora of factors," Galappatthige said in a research note. "We believe this makes structuring a new deal that has a viable shot of passing the CRTC difficult."
BCE can appeal the CRTC's ruling to the Federal Court of Appeal. BCE, which operates as a telecoms company under the Bell Canada banner, said it plans to ask the federal government to overturn the regulator's ruling.
Even if BCE were to win an appeal, the transaction would need to win a nod from Canada's antitrust watchdog, the Competition Bureau, which has yet to issue its ruling on the deal.
The federal government on Thursday said it has no plans to intervene, and analysts pointed out that there is no precedent for cabinet to intervene in a broadcasting M&A transaction.
"Given the lack of precedent, a still pending decision by the Competition Bureau and an outside date of mid-January under the existing merger arrangement, we see a low likelihood of the transaction closing," McReynolds said.
The deal has a C$150 million break-fee attached to it, but it is unclear at this time whether BCE would be on the hook to pay the entire amount if the deal falls apart completely.
Although Rogers and Cogeco Inc are seen as possible buyers, analysts doubt that either will bid for all of Astral.
Astral may not fit with Rogers' focus, which is on local content and sports, while a bid from Cogeco would require a dilutive equity issue as the company's financial flexibility has been limited by its recent $1.36 billion takeover bid for U.S. cable operator Atlantic Broadband.
OTHER STOCKS HIT
The CRTC ruling affected other stocks in the sector.
BCE's shares fell 1.7 percent to C$42.91 as analysts warned that the failure of the deal puts a crimp in its plans to expand its fiber-optic and next-generation LTE wireless network.
"We believe the failure of this deal may lead some to question the potential impact on BCE's future dividend increases and flexibility to fund increasing capital expenditure to accelerate growth," said UBS analyst Phillip Huang in a note.
Shares of Corus Entertainment Inc fell 2.8 percent to C$22.33 as investors bet the ruling lowers the probability of it being taken over.
Quebecor's shares rose slightly to C$34.61 as the failure of BCE's bid has reduced the prospects of heightened competition in the French-speaking province of Quebec, where Quebecor dominates the market.
(Reporting by Euan Rocha and Alastair Sharp; Editing by Janet Guttsman; and Peter Galloway)