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CanWest scores a win in specialty channels fight

awillis@globeandmail.com

CanWest Global Communications has won a small but significant court battle, rebuffing an attempt by Goldman Sachs to put a hammerlock on the media company's specialty television networks.

CanWest got a seal of approval from an Ontario Superior Court judge for steps the media company took in October that were meant to give it a tight hold on 13 specialty channels that it co-owns with the Wall Street investment bank.

In a move that shows the relationship between these partners has fallen apart, Goldman went before Madam Justice Sarah Pepall to object to changes that CanWest made to its corporate structure and the specialty TV unit, prior to the Winnipeg-based company's filing for creditor protection on Oct. 6.

After a hearing last week, Judge Pepall sided solidly with CanWest. In a decision released late Tuesday, she said setting aside Goldman's protest is in the best interests of all stakeholders, as it would give CanWest "a reasonable opportunity to develop a restructuring plan."

Among other requests, Goldman wanted the opportunity to examine, under oath, many of CanWest's senior executives and directors in its law firm's office, a prospect Judge Pepall termed "enormously disruptive" to the restructuring.

This is just a preliminary skirmish in a larger battle, however.

CanWest's specialty TV holdings are its crown jewels. Channels such as Showcase and History Television generate steady profits from subscriber fees. A number of rivals are interested in buying the division, known as CW Media, and Goldman has the right to sell the unit.

However, CanWest executives say that continued ownership of CW Media is critical to the future of the Canadian parent, post-restructuring. CW Media was not included in the filing for creditor protection.

All these court fights reflect the fact that CanWest now wants to rework a partnership struck in 2007 as part of CanWest's $2.3-billion acquisition of Alliance Atlantis Communications Inc. CanWest has since come to view the arrangement as a sweetheart deal for the investment bank. Goldman is understandably reluctant to give up any of the rights baked into that 2007 deal.

CanWest and its creditors are expected to keep pushing Goldman to re-cut the ownership of CW Media. This week's court decision strengthens CanWest's hand in future talks.

More than 20 law firms are tied up in this restructuring. Osler Hoskin & Harcourt represented CanWest in the recent hearings, while McCarthy Tétrault worked for Goldman.

SPROTT LIFTS HEDGE SECTOR

Eric Sprott's hedge funds put up great numbers in November, and changed the dynamic for the entire sector in Canada.

Scotia Capital published its monthly index on hedge fund performance late Tuesday, and it showed that Canada's largest hedge funds outperformed their smaller rivals. The index also showed that the sector lagged the overall market during the month, and November saw investors go gaga for gold.

Here's how performance looks for the whole domestic hedge fund crowd. Scotia Capital's index takes in 38 money managers: Domestic hedge fund managers were up 3.24 per cent on an asset-weighted basis last month, according to the Scotia Capital Canadian Hedge Fund Performance Index. That measure takes the size of each fund into account. The Scotia Capital index was up 1.79 per cent on an equal weighted basis.

The largest hedge funds in this index are run by the redoubtable Mr. Sprott and colleagues at Sprott Asset Management. As you may have heard, this crowd knows gold.

Sprott Hedge Fund LP was up 8.65 per cent in November; this fund is home to $503-million, so it's a major component in Scotia Capital's index. Sprott Hedge Fund LP II, which has $551-million of assets, was up 9.21 per cent. A third of the long positions in each fund are in mining stocks. Scotia Capital measures performance at funds with $15-million or more, and at least one year of results.

By massively outperforming rivals, Sprott Asset Management shaped performance for the Canadian hedge fund industry. And unlike its peers, Sprott hedge funds beat the index. The S&P/TSX benchmark was up 4.92 per cent in November, while the S&P 500 rose 5.74 per cent.

In commenting on domestic hedge fund results, Scotia Capital said: "Gold hit another record high to post 34-per-cent gains year-to-date, and was the primary driver of the commodity market advance."

Scotia Capital's analysts went on to say: "Canadian hedge fund managers delivered solid aggregate results in November, benefiting from long commodity, fixed income and yen themes and short U.S. dollar trades. Benefit from the equities rally was muted due to generally conservative positioning."

© 2007 The Globe and Mail. All rights reserved.

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