TORONTO - Goldman Sachs is sharpening its sword for a potential legal battle with Canwest Global Communications over the future of its broadcasting assets with one observer suggesting the investment firm has the clout to kill the sale of the business to Shaw Communications Inc.
"If it were anyone but Goldman it would be easy to classify this as simple muscle flexing without any substance behind it," suggested Carmi Levy, a media analyst at AR Communications Inc.
"But the truth is that Goldman isn't any bidder. Goldman already has a lot of skin in the game."
The New York-based investment firm filed documents in court Wednesday seeking to stop the sale of Canwest's television assets to cable operator Shaw (TSX:SJR.B), an agreement that was approved last month by the Ontario Superior Court of Justice.
Goldman said Canwest's restructuring process has been "corrupted" and said Canwest's directors and the bankruptcy court bowed to the interests of bondholders, rather than the "best restructuring" plan for the company.
The filing also hinted that Goldman - which owns a 65 per cent stake in the Canwest specialty channels - will offer further roadblocks in the sale process if their appeal isn't heard.
"It is critical that the Court of Appeal intervene at this stage of the restructuring process to stop the abusive use of the CCAA to serve the noteholders' interests," the filing said.
"Without Court of Appeal intervention, this matter will continue down a path of acrimonious and time-consuming litigation in which (Goldman) will ultimately prevail against any attempted disclaimer of the CW Shareholders Agreement."
The appeal comes after Goldman raised concerns about the Shaw deal, while backing an 11th-hour bid from private equity firm Catalyst Capital Group.
Catalyst and Goldman's counter offer was valued at $120 million for 32 per cent of the equity interest in Canwest and voting control of the company, and had the support of Canwest's founding family, the Aspers.
That counter offer was shut out when the judge approved Shaw's offer, which was worth $95 million for about 20 per cent of Canwest Media, which holds the broadcast television and specialty channel assets. The deal also gives Shaw 80 per cent of the voting shares.
Justice Sarah Pepall noted in her decision last week that she considered the Catalyst's late bid "unnecessary," and suggested the firm could've made its case at an earlier date when it first ran into a conflict with Canwest.
Catalyst had complained to the court that it was prevented from participating in the process when it refused to sign a non-disclosure agreement.
However, Pepall's comments still might not keep Goldman from pursuing its objections with the process.
"The very fact that Goldman is anything but a distinterested party really means the judge in this case will have to sit up and take notice and cannot summarily dismiss Goldman's claims," Levy said.
Canwest and the others involved will now have the opportunity to respond to the allegations in court.
"We stand by our actions and our governance process that are in place," Canwest spokesman John Douglas said.
He added that Canwest will have 25 days to make its response.
Shaw executives and lawyers did not return a calls for comment.
Winnipeg-based Canwest (TSXV:CGS), which owes billions of dollars to its creditors, has been operating under court supervision since last year.
Leonard Asper resigned last week as Canwest's president and CEO saying he intended to "pursue other business opportunities and avoid any conflict of interest" with the ongoing restructuring of Canwest.
The move set the stage for Asper to continue his involvement in Catalyst's bid for the Canwest broadcasting empire, without clashing with the current board of Canwest.
On Wednesday, Catalyst made it clear that its offer for the broadcasting division still stands and that it backs Goldman's appeal.
"Catalyst and Goldman Sachs remain committed to our proposal - and we're confident in both its fairness and its value," the firm said in a statement.
"Catalyst strongly supports Goldman Sachs as it exercises its rights - both as a matter of law and a matter of fairness."
Duncan Stewart, director of research and analysis at DSam Consulting, said he believes the legal wrangling between the two companies will continue between now and the closing of the deal on Aug. 11.
"There are likely to be more back and forths over this and other issues, but most of them tend not to actually elongate the entire process," he said.