The sale of CanWest Global Communications Corp.'s newspaper chain, set to begin this week, has exposed a deep and bitter rift between its chief executive officer Leonard Asper and what was once one of the company's most trusted banks.
In response to a letter Mr. Asper wrote last week attempting to block creditors from putting the company's 45 newspapers up for sale, the Bank of Nova Scotia has written a scathing letter questioning the CEO's authority.
CanWest's newspaper division, known as CanWest LP, has fallen seven months behind on its debt payments. The bank has warned Mr. Asper that he now has no say over whether the assets are sold to recoup $935-million the senior lenders are owed.
"The information provided to us makes it unclear whether you have the corporate authority to make the proposals contained in your letter," Jane Rowe, Scotiabank's executive vice-president of global risk management, told Mr. Asper in her letter.
Mr. Asper tried to halt the process, saying the sale of the newspaper division is being rushed - and that a higher price could be fetched down the road in a better economy. In response, Scotiabank informed Mr. Asper that his time has simply run out and the banks want to be paid.
"We remind you of the following facts … [the newspaper division]is insolvent. It is plain and obvious that it cannot support its massive debt, and that a transaction will have to occur that fundamentally alters the balance sheet of the newspaper business," the letter states.
Scotiabank was once a key backer of Mr. Asper's father, the late CanWest founder Izzy Asper, who died in 2003. But the letter is a sign of how the relationship has deteriorated in recent years as CanWest began to struggle financially, missing several opportunities to pay down its debt.
CanWest's newspaper division filed for court protection from creditors on Friday under the Companies Creditors' Arrangement Act. Scotiabank is now leading a group of secured creditors that includes Canada's five largest banks and 183 lenders worldwide who are seeking to recoup what they are owed.
The CCAA filing kick-starts an auction that will begin this week, putting Canada's largest chain of newspapers up for sale. The process involves 10 metropolitan dailies, such as the Vancouver Sun, Calgary Herald, Ottawa Citizen and Montreal Gazette. It also includes the National Post newspaper and 35 community papers.
In his letter, Mr. Asper argues the sale will only benefit the banks. A source close to the situation said Mr. Asper hopes CanWest's parent company can garner some cash of its own from a sale if the newspapers are sold for a higher price than what the creditors are owed. In total, the newspaper division owes $1.3-billion to senior creditors and bondholders.
"I profoundly disagree with an early CCAA filing by the [newspaper division]" Mr. Asper wrote in his letter to Scotiabank. "I am particularly concerned that such a filing will result in undue and unnecessary harm to the [division's]stakeholders."
"We simply ask for … a solution that would result in a better outcome for a wider group of stakeholders."
In response, Scotiabank informed Mr. Asper that a sale of the newspapers is the best option, since the auction beginning this week will set a market price for the newspaper division "in a clear and definitive way."
Expected to last four months, the process will also lead to "a resolution of the situation within a reasonable period of time," the bank said.
If no bid higher than the $1-billion price tag the banks are said to be seeking is received, the creditors will take ownership of the newspapers and sell off shares in the division through an initial public offering.
Financial information will be sent out to about 60 potential buyers this week, including financial investors and rival media players; however, it is not clear if any bids will materialize. Media ownership rules in Canada, which prevent companies from owning more than two out of three outlets - radio, print and television - in any market, will limit the list of industry buyers.
With the newspaper group filing for creditor protection, CanWest has effectively been split in two, dividing up its television and print operations. The broadcast division, called CanWest Media Inc., filed for protection from creditors in October. That part of the company holds the Global Television network and several specialty channels.