Black shadow looms over CanWest

As he languishes in a Florida prison cell, press baron Conrad Black might permit himself a nostalgic smile.

Canada's largest media company, Canwest Global Communications, has filed for bankruptcy protection, laden with debt incurred in an ill-considered deal with the notoriously ruthless fraudster who once owned the London Daily Telegraph.

Struggling to pay its bills and facing a crisis of confidence among advertisers, Canwest filed for protection for some of its operations, including the National Post newspaper, from its creditors at a Toronto court this month. The move could lead to a break-up of an empire spanning Canada's Global Television network, and a roster of press titles including the Montreal Gazette, the Ottawa Citizen and the Vancouver Sun, and part-ownership of BBC Canada.

It is difficult to overstate Canwest's influence in Canada. It's an extraordinary story of acquisitive growth.

The company was founded in 1975 when a chain-smoking former provincial politician, Israel "Izzy" Asper, bought a North Dakota radio station and had its transmitters trucked to his home town of Winnipeg.

As its collection of pre-eminent Canadian media properties swelled, the company horrified those on the left with its eager dissemination of neo-conservative philosophy and hawkish views on the Middle East.

Its bankruptcy filing is a severe blow to a dream of international influence harboured by Asper and his children, who wanted Canwest to rank alongside global giants such as News Corp and Viacom.

Experts trace its downturn to a deal in 2000, when the firm was out-foxed by the cunning of Black, who sold Asper a stable of top newspapers for C$3.2 billion ($4 billion).

"That was the start of the unwinding," says Todd Johnson, a portfolio manager at BCV Asset Management in Winnipeg. "I don't think you can say they ever got the returns from that newspaper business they expected and the deal was financed with high-cost debt."

The transaction with Black was classic brinkmanship. Frustrated by the limitations of news broadcasting, Asper was keen to build a press platform through which he could expound his political views. Meanwhile, Black, a fellow conservative media mogul, had decided that the fortunes of the newspaper industry had peaked.

According to evidence at his fraud trial in 2007, the peer gave Asper the impression there were rival bidders in the wings for his Southam collection of papers. In fact, there were none.

"Conrad sold him those papers at the very height of their value. It was almost the week, the day, when they peaked," says journalist Peter Newman, author of a biography of Asper. "Here, being offered by Conrad at one swoop, were the most powerful newspapers in Canada. It was a very tempting proposition."

Canwest borrowed the funds to purchase Black's papers at 12 per cent interest and then, further weakening its balance sheet, bought a television network covering western Canada for a further C$900 million.

Newman says: "Suddenly, this very healthy company had a huge debt that had to be serviced."

Asper died in 2003 and left Canwest to his three children, one of whom, Leonard, became chief executive. The younger Asper compounded the financial over-stretch by striving to grow internationally.

The company has had interests as far afield as Chile, New Zealand - TV3 now owned by MediaWorks - and Ireland. It owned a leading Australian television station, Ten Network, and British radio stations in Bristol, Aberdeen and Southampton.

Chris Diceman, an analyst at ratings agency DBRS in Toronto, says foreign expansion was, with hindsight, foolish: "They were not in good shape. If they'd then focused more on what was happening here in Canada, they might have seen some of the strategic changes going on and focused on deleveraging."

Sell-offs to raise funds over the past 18 months have proved insufficient to withstand an advertising recession.

Hit by a billion-dollar write-down in the value of its assets, Canwest suffered a C$1.58 billion loss for the nine months to May and had C$4 billion of debts. Concerned about Canwest's financial position, banks began baulking at lending it money to produce television shows and US studios demanded letters of credit before renewing programming agreements.

In an email from prison to Canadian media outlets, Black has shrugged off responsibility for Canwest's difficulties. "I had nothing to do with the Canwest problems," he wrote, blaming the Aspers for loading themselves with debt. "The acquisition from us was not financed properly."

Senior executives at Canwest insist this is not the end. Leonard Asper has expressed optimism that a restructured Canwest will emerge from the bankruptcy courts. The firm has a tentative agreement under which its borrowers will take control, leaving existing shareholders with little more than 2 per cent ownership.

Its bankruptcy filing only covers divisions owning Global Television and the National Post, with specialist cable channels and city newspapers still solvent.

He told the National Post: "We have a controlled restructuring and a company that when it emerges is going to be very strong and very profitable."

But a research note by Tim Casey, an analyst at BMO Capital Markets, said: "We expect the television and newspaper assets at Canwest to be formally separated in the very near term. What is much less clear is who, among the existing media companies, will end up owning various assets within the company."

If Canwest breaks up, not everyone will shed tears. Marc Edge, author of Asper Nation: Canada's most dangerous media company, said Canadians would be better off without a company that, at one point, tried to get all its city newspapers to publish centrally written editorials produced at its Winnipeg headquarters, advocating "neo-liberal economics, deregulation, privatisation and ardent Zionism".

Such was the discontent among journalists about the Aspers' editorial line that staff at the Montreal Gazette went on a byline strike in 2001, refusing to put their names to articles or pictures.

"The worst thing about the Aspers was that they politicised, to a great extent, Canadian journalism," says Edge. "There seems to have been a concerted movement to take Canada's press to the right by people like Conrad Black and the Aspers. That's unhealthy for political discourse."

Perhaps surprisingly, many of Canwest's businesses are in relatively healthy shape by the standards of the world's struggling newspapers and broadcasters.

Canada's advertising recession has been milder than the downturn south of the 49th parallel and the country retains an appetite for print media.

The Communications, Energy and Paperworkers Union of Canada says the company fell victim to a familiar credit-crunch story - debt-friendly banks allowed its management to take on far too much leverage.

"It's not as if their properties are teetering on the edge. The problem is that they were just far, far too heavily extended," says Peter Murdoch, the union's vice-president for media.

"You'd like to think the banking system should have said to Canwest, 'You've borrowed too much money, you won't be able to sustain it'. It's not unlike other sections of the economy where financial institutions have fed an addiction for greed."

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