Montreal: The city’s two largest technical service providers, AstralTech and Groupe Covitec, have merged to create what Astral Communications development vp Jacques Parisien says is ‘the biggest post-production company in Canada.’

The new Covitec has about 60 million outstanding shares, which have increased in value from $0.75 to close to $0.90 since the Feb. 8 merger announcement.

The amalgamated operation has between $45 million and $50 million in assets and annual revenues of $65 million, made up of $44 million on the AstralTech side (as reported in last fiscal) and $19.2 million from Covitec. Covitec now employs 500.

In the deal, Astral receives a controlling 63.3% interest, or 42,595,003 shares, in Covitec in return for merging its technical services – motion picture laboratory, sound and dubbing facility, video post-production center and 2D ink-and-paint animation service.

Covitec shareholders retain 37% of the shares, with Claude Gagnon on board as president and ceo. Astral president Ian Greenberg is the new chairman.

Parisien says the technical service market in Quebec has a ceiling and both companies were faced with major capital expenditures and service demands going forward.

‘We had to stay on top of the equipment demand and deliver within the delays required by clients. In some very specific areas there is duplication and [there will be closings],’ he says.

Per Gagnon, projected capital expenditures for ’99 are likely to double to $4 million or $5 million from $2.5 million in ’98. Gagnon says the cap-ex investment is likely to go to special-effects technology, where the changeover requirement is higher.

Gagnon says there will be some integration and staff reduction but the goal is to consolidate and grow the $65 million in annual sales.

Covitec currently has five film-to-tape transfer suites.

‘We’re not going to be sending one to the competition,’ he says. ‘The idea is to keep the five and eventually have eight in Montreal.’ State-of-the-art transfer units represent an investment of $2 million and more.

Covitec is listed on the Montreal Exchange, with about 30% of the outstanding shares widely circulated.

Covitec’s institutional investors, Capital Communications cdpq and Capital cdpq, subsidiaries of the Caisse de depot et placement du Quebec, and Societe d’investissements Capimont, are entitled to two seats on Groupe Covitec’s board.

‘They liked the idea [of the merger] so much they’ve stayed on,’ says Parisien.

Both investors have an open option to increase their equity to 10% and a longer-term option to sell their shares to Astral.

Covitec plans to expand its sales representation outside Quebec, says Gagnon.

Covitec and Television Quatre Saisons, majority owned by Communications Quebecor, have an agreement in principle whereby Covitec will manage the outsourcing of tqs’s fully soundproofed tv studios and equipment facilities.

The deal is partly provoked by tqs’s announced move to Quebecor’s Old Montreal offices this summer, with Covitec’s new role kicking in sometime in July.

The tqs studios include a digital control room, dressing rooms and full camera packages.

‘The interesting concept here is that outsourcing is now hitting our industry,’ says Parisien. ‘This is a first concrete initiative from a broadcaster to outsource a major component of its business and Covitec is positioning itself to become a major player in the outsourcing industry.’

AstralTech operations are concentrated in two downtown locations while Covitec has locations in Montreal, Quebec City and Ottawa. Covitec’s operations include post-production services, a film laboratory (Sonolab), shooting studios (Studio LaSalle), equipment rentals, turnkey television production and video duplication.

The AstralTech Video Duplication Centre is not included in the merger.

Astral a stock was trading in the $28 a share range at Playback press time, up from $15 a year and a half ago.