Saturday, October 01, 2005

CanWest MediaWorks Income Fund IPO

CanWest is spinning off their newspaper unit into an IPO. The new fund is valued at roughly 2.4 Billion, with yearly revenues of about 1.1 Billion, making it the largest IPO in 5 years in Canada. They plan to sell 70 M units for 10 dollars each, raising 700 M. They will use the proceeds to pay down debt. The units will pay a dividend between 8 to 8.5 %

I did some research into this, and for the quarter ending July, their newspaper unit had an operating income of about 74 M. I don't know how much debt will be transfered from the parent company, but after amortization, interest payments and taxes, their net income should be about 50 M per quarter. (The parent company currently has 3.3 B in debt)

However, the biggest concern with this IPO is the fact that Canada has recently stated they will change the tax structure for income trust. This could adversely affect all trusts, because if they pay more taxes, their net income decrease. Therefore, I am not sure what type of demand there will be for the CanWest IPO. If the demand is low, there might not be a huge jump on opening day.

I am still going to subscribe to this IPO, because they are reasonably valued, and the 8 - 8.5% dividend doesn't hurt, although I do not expect much growth. If there is low demand, CanWest might shrink the market capatalization of the company to increase the yield.


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