COVER

THE NEXT HURDLES

JOHN DALY March 21 1994
COVER

THE NEXT HURDLES

JOHN DALY March 21 1994

THE NEXT HURDLES

COVER

It was an end and a beginning. When Ted Rogers sat in the Art Gallery of Ontario’s elegant Walker Court last week and signed the documents outlining the terms of his company’s proposed $3.1-billion takeover of Maclean Hunter Ltd., it capped a month of flattery and arm-twisting that convinced Maclean Hunter executives that the deal was in their shareholders’ best interests. But Rogers must now win approval for the deal from regulators in Ottawa and Washington, a task that will probably take at least a year to complete. Surveying the bureaucratic hurdles that still lie ahead, Maclean Hunter president Ronald Osborne—who clashed with regulators over Maclean Hunter’s 1988 takeover of Selkirk Communications Ltd.— said jokingly that Rogers is in for “a rare and special treat.” Rogers himself knows full well what lies ahead. “Hiere is a tremendous burden that I think we can meet,” he said. “But we shouldn’t walk around thinking it’s done.” Until the U.S. Federal Communications Commission (FCC) in Washington and both

the Canadian Radio-television and Telecommunications Commission (CRTC) and the Bureau of Competition Policy in Ottawa assess the merger, Maclean Hunter will be in the custody of a trustee. Rogers has appointed Pierre Juneau, a former CBC president and CRTC chairman, as the trustee to oversee Maclean Hunter while Rogers awaits the regulators’ verdicts.

The legal hurdles appear to be lower in Washington than in Ottawa. In addition to FCC approval for the merger, Rogers will also have to obtain permission for his proposed sale of part or all of Maclean Hunter’s U.S. cable holdings. That likely will not be a controversial process. Maclean Hunter’s American holdings are small compared with those of its major competitors, and regulators in Washington do not watch the company with the same keen eye as do their counterparts in Ottawa. Indeed, in an official notice, which the FCC issued the day before last week’s merger announcement—when Rogers’ proposed takeover bid was still a

hostile one—the commission misspelled the company name as “Mclean Hunter.”

Rogers is bound to face a rougher ride at home. Both the CRTC and the competition bureau, the branch of the industry department that reviews mergers and takeovers, can recommend approval, disapproval or major revisions to the terms of the deal. And both bodies will have to wrestle with the same contentious trade-off: whether or not Rogers needs to dominate the southern Ontario and British Columbia cable markets to compete effectively against telephone companies and U.S-owned multimedia giants for the delivery of a wide range of services to home users. As Industry Minister John Manley said in an interview: “That’s the essence of the argument.”

At the competition bureau, the deal will be reviewed first by the director of investigation and research, George Addy, who will decide whether or not it substantially lessens or prevents competition in any of the markets affected by the merger. If he concludes that that is the case, he can recommend changes to the deal to the parties. He can also challenge the merger in front of the Competition

Tribunal, a quasi-judicial body that can issue legally binding orders.

In the past, agency officials and the tribunal have been skeptical of the argument that bigger is better—but have only rejected a handful of mergers outright. In most cases, Addy says, the agency’s approach is to identify particular components of a deal that inhibit competition, and “to try to focus our remedial efforts on those com-

ponents only.” That has resulted in major revisions to some deals. In 1990, the tribunal forced Imperial Oil Ltd. to sell off 635 service stations, before it allowed the company to buy Texaco Canada Inc. for $5 billion.

The CRTC will examine a broader range of issues when it holds hearings into the merger, likely some time this fall. “There are a lot of very big questions,” CRTC chairman Keith Spicer told reporters last week. Like the Competition Tribunal, the CRTC has also ordered changes to previous takeover deals. In 1989 and 1990, it rejected two attempts by Maclean Hunter to sell the Hamilton television station CHCH, which the company acquired in its $600-million takeover of Selkirk

in 1988, before finally allowing it to sell the station to Vancouver-based WIC Western International Communications Ltd. for $46 million. Last week, Rogers vice-chairman Philip Lind declined to speculate about which holdings the commission might want the newly merged company to sell off.

But while the CRTC may order asset sales, analysts say that it is unlikely to reject the takeover outright. Hudson Janisch, a professor of communications law at the University of Toronto, says the commission will probably pressure Rogers to increase funding for Canadian television programming. Declared Janisch: “The commission has always tried to extract a quid pro quo.”

Rogers already lends money to movie and TV producers through its Rogers Telefund—a total of $13 million in 1992. “We didn’t have to do that,” said Lind. But the commission appears to want more than voluntary commitments from cable operators. Last month, it ordered the industry to contribute up to $300 million over five years to a new Canadian Programming

Production Fund, starting in 1995.

Because Rogers will also acquire Maclean Hunter’s large stable of newspapers, magazines and trade publications, some competing publishers raised concerns last week that the deal might make it harder for them to offer programming on cable television or new computerized information services. But Rogers dismissed those worries. “We may be developing the highway, but everyone will be able to travel on it,” he said. It may seem that simple to him, but explaining all the implications of the deal to regulators will undoubtedly take a long time.

JOHN DALY