It wasn’t the biggest deal. It wasn’t marked by public rancor. And it did not turn on the machinations of a glamorous Forest Hill power couple. But the news that Alliance Atlantis Communications is buying Halifax-based Salter Street Films is the most beguiling industry story in months.

After weeks of takeover speculation that saw Salter stock soar on the tse and media watchers salivate at its prospects, aac revealed on Feb. 12 a complex offer for the Canadian company producing the funniest marquee shows now and launching the sexiest digital specialty in September.

Salter, known for such comedy hits as This Hour Has 22 Minutes, campy sci-fi series lexx and the drama Emily of New Moon, won the licence for The Independent Film Channel Canada, a guaranteed-carriage digi-specialty, last fall. The film channel was the genre most cherished by industry titans aac and Astral, among others.

Following a leak last November of a list of some of the winners in the latest round of specialty channel licensing aac moved quickly. aac ceo Michael MacMillan confirms talks with ssf began in December. If the deal is approved by shareholders, and the channel transferred to aac by the crtc, the Toronto company will have a direct outlet for its film catalogue, which may have been costly for Salter to access.

While the ultimate value of the acquisition will fluctuate depending on the value of aac’s b shares, MacMillan says the price should fall between $75 million and $80 million or about $9.22 per Salter share. The sale is expected to close mid-May.

Under the terms of the acquisition agreement, Salter shareholders may choose to receive either $3.33 in cash and 0.310 class b non-voting shares of aac for each share of Salter Street Films, based on the closing price of aac class b non-voting shares on Feb. 9, or 0.465 class b non-voting shares of aac for each share of Salter.

Salter chairman and ceo Michael Donovan and vice-chairman Paul Donovan, who hold all the multiple voting shares of the company, along with other holders of subordinate voting shares, have agreed to vote in favor of the deal. This group represents roughly 71% of the votes and about 25% of the total issued and outstanding shares of Salter.

"It’s a great deal," says Donovan. "We’re looking forward to it – it provides us with tremendous leverage in focusing on the core business of production."

Salter went public in 1998. Michael Donovan has said the company had to gain a specialty licence to grow to the proverbial next level. But as a smaller player with no broadcasting experience, Salter had to convince the crtc of, among other things, the need for diversity in broadcast ownership. If the regulator transfers ifcc ownership to aac, some of that diversity will evaporate.

But Michael Donovan says the economics of holding only one Category 1 licence proved difficult. "Our argument to the regulator was that effective diversity, in the current competitive environment, given expected technological changes, could be best accomplished with multiple channels in Category 1, which is why we applied for so many. On a standalone basis, the ifcc would likely have become an orphan. We are confident, however, that despite this reality, we could have made a success of it and were planning to do just that.

"This would require ifcc, however, to be effective as leverage with respect to launching two or more Category 2 channels. Unfortunately this rather optimistic scenario ran against the hard reality of recent discussions with (satellite and cable carriers). Ultimately, therefore, the economics generated by combining with aac, while preserving our autonomy and identity for the channel, seemed to make the most sense."

The Donovan brothers will remain with the company under three-year contracts, and the company’s production activities as well as the new channel, with Michael Donovan as chair, will stay in Halifax. MacMillan says "the channel will make its own decisions about what it wants to license. It will make its own programming decisions. The programming people will report in to Phyllis Yaffe," president of AA Broadcasting. MacMillan, who says he’s delighted with the addition of comedy programming to aac’s genre mix, adds that aac is evaluating Salter’s Web businesses.

"It was a very friendly deal," he says. *

with files from samantha yaffe

-www.allianceatlantis.ca, -www.salter.com