Shaw Communications
When the bondholders in charge of CanWest Global Communications Corp.'s restructuring approached the Shaw family about coming on board, Jim Shaw and his father JR were skeptical.
But the thought of buying the core asset of CanWest, a company founded by Izzy Asper, who had battled on deals with JR over the years, was just too attractive for the Calgary-based family to turn down.
The bondholders wanted Shaw Communications Inc. to become the Canadian investor that would hold the voting shares, a requirement under Canadian ownership rules. Yesterday, Shaw announced a deal to acquire 20 per cent of CanWest's equity and 80 per cent of the voting interest.
With that deal, Shaw moves beyond so-called "dumb pipes," joining, and competing against, the larger, more diversified conglomerates jockeying in a new media era. Analysts, though, wonder whether Shaw may be diluting its core strategy and, perhaps, delaying crucial steps.
"Dumb pipes" have long been a smart bet for Shaw, although the company would never refer to them that way. Shaw's consistent profitability has challenged the idea that those who just carried content over such pipes were doomed to be subservient to those who owned that content. By churning out dividend after dividend for shareholders, Shaw proved that owning the wires and cables wasn't only enough to keep up, but more than enough to stay well ahead.
But a wilted, devalued CanWest proved too tempting, and Shaw said yesterday it sees strong opportunities in the deal.
"Jim knows a good deal when he sees one," said telecom analyst Iain Grant of the SeaBoard Group consultancy, referring to Jim Shaw, the company's chief executive officer and vice-chairman. "But he's also looking at what's the future of the cable company.
"They've proven that you don't need to own content," added Dvai Ghose, a telecom and cable analyst with Genuity Capital Markets.
The stock trades at a premium, the company generates healthy margins, and it churns out regular dividends to shareholders. At the root of this success are cables, not content: a vast network laid across its western Canada base, with more than 2.3 million basic cable subscribers, 1.4 million on digital cable, and 1.7 million high-speed Internet customers.
But Mr. Ghose questions the idea that content is king for the company's bottom line, even if Jim Shaw and his father have some long-term strategy for synergies with CanWest's broadcast assets.
Analysts said adding content to Shaw's mix complicates a good thing unnecessarily. Not only that, but it may affect or delay Shaw's entry into the wireless game, which many consider crucial for Shaw if it wants to continue to sustain its growing subscriber base.
"The Street was more looking for Shaw to venture out into the wireless sector and establishing a wireless presence in order to add growth to the top line," said Maher Yaghi with Desjardins Securities in Montreal. "While this is not totally unexpected, it's not exactly what I would have thought that the company would do with their cash."
Greg MacDonald, a telecom and cable analyst at National Bank Financial, is on the fence. Like others, he thinks Shaw's investment is small for the amount of control it gives the company over CanWest; like others, he worries Shaw won't find any revenue down this particular, well-trod path.
"Content is becoming a more important way of differentiating a product, but I'm still a skeptic with regard to the revenue synergies," Mr. MacDonald said. But he was quick to add that, "I haven't seen this company make a lot of stupid investments. Stay tuned."
With files from Grant Robertson