CanWest Global Communications will suffer yet another financial humiliation Nov. 13. That’s the day the company’s shares, each of which currently trades for less than the cost of a handful of Skittles, will be delisted on the Toronto Stock Exchange.
CanWest was once a champion of media convergence. Today, it is a distressed company that is an example of enforced divergence, thanks to economic circumstances and hard-nosed creditors.
CanWest’s disintegration has been predictable for some time. When you pile on about $4 billion in debt and rely on cyclical businesses like broadcasting or newspapers, whose fundamental business models are being reshaped by rapidly changing technology, you’re very likely to run out of cash.
But while the company’s descent into bankruptcy protection is an extreme case study in overambitious growth by acquisition, it should serve as a warning to the many companies that have increasingly relied on mergers and acquisitions to fuel growth rather than building from the inside out.
Particularly in the past decade, Canadian companies have been gobbling up competitors at home and abroad. The pressure to do so is obvious: If you don’t indulge in the consolidation binge, your rivals surely will, and they will digest you in the process.
This voracious survival imperative has to be balanced against the risks of acquisitiveness.
Despite the risks, Canadian companies have healthy appetites.
In the five years ended in 2008, they consummated 6,684 deals worth $587.6 billion, according to figures compiled by investment banker Crosbie & Co. In most years, close to half the value of acquisitions consist of Canadian companies either buying foreign-owned firms here or abroad, usually in the U.S.
Who says we’re not risk takers?