Was last week’s abortive $90 million fund raising by the Ten Network an attempt to bolster its struggling Canadian parent?

The thought has emerged after more bad publicity about Canwest’s struggles to survive as a going concern in Canada where a major shareholder, Fairfax Financial is thought likely to be the white knight.

Within a day of the failure of Ten’s attempts to raise $90 million by issuing 120 million shares at 75 cents each, reports emerged in Canada of Canwest trying to find a new big shareholder and sell assets to prevent it breaching loan covenants.

Canwest refused to participate in Ten’s failed issue to maintain its 56.6% stake.

The issue would have cut Canwest’s stake to just over 50%, enough to ensure than on a consolidated basis, the extra cash would have bolstered its balance sheet. Canwest could have accessed the money to help repay a $C112 million loan due this Friday.

It would have had the best of both worlds, control and a 50-plus stake in Ten and the cash. It could have accessed the cash through inter-company loans, (Ten being a subsidiary).

But that failed. Now Canadian reports say Canwest is desperately trying to find the money to stave off its banks. Canwest’s shares plunged 17.6%, or 7.5 Canadian cents, to 35 C cents, 4 cents above the all time low of 31 cents.

“Potential bids are being drawn up for CanWest Global Communications Corp.’s coveted specialty channels in the event the media company is forced to liquidate assets,” one report in the Canada Free Press said.

“Sources say investment bankers have approached two Canadian broadcasters, Corus Entertainment Inc. and Astral Media Inc., to formulate a bid for CanWest’s stake in specialty assets formerly owned by Alliance Atlantis Communications Inc.

“The channels, which include cable properties such as HGTV, the Food Network and Showcase, were the primary reason CanWest partnered with Goldman Sachs to acquire Alliance Atlantis two years ago in a deal that has pushed its debt load to $3.9-billion.

“CanWest is now looking to sell several non-core assets to drum up cash. Last month, it put its secondary TV network on the block.

“It also is trying to unload its 26.5-per-cent stake in sports specialty channel, The Score, to its majority owner, Toronto-based Score Media Inc.”

And the Toronto Globe and Mail reported that CanWest CEO Leonard Asper told staff late last week in a memo that the company was pursuing many options to secure financing, but stressed that its core operations are healthy.

“What is often overlooked is that CanWest’s businesses are highly profitable and generate well over $500-million a year in operating profits. Our issue is that in this recession, those profits have been reduced by a serious downturn in revenue so our “mortgage” is too high for our lenders’ liking,” Mr. Asper said in the memo.

A key part of any restructuring would be the fate of the specialty channel unit, which changed hands in 2007 for $C1.5-billion. Mr. Asper structured the deal so that CanWest only had to put up $C262 million. Goldman Sachs private equity arm financed the rest, taking a majority of the equity but a minority voting stake.

The paper said Mr. Asper met with possible investors last week in Toronto ahead of a key funding deadline this Friday on a senior credit facility that was cut back to $C112-million this month from $C300-million by Bank of Nova Scotia.

“CanWest’s largest non-family shareholder, Fairfax Financial Holdings Ltd., is among investors that have expressed interest in a new capital injection to forestall bankruptcy protection.

“Bankers close to the company suggest Fairfax or other investors would have to inject about $C300-million to be effective.”

The paper said that a condition of such an investment by Fairfax would be a change in control at CanWest.

Peter Fray

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