Newspapers lie on a coffee table in Postmedia president and CEO Paul Godrey's office following a news conference in Toronto on Oct. 6, 2014.Chris Young/The Globe and Mail
In a jubilant mood and sporting diamond-studded "SUN" cufflinks, the head of Postmedia Network Canada Corp. praised what he called a "landmark decision" from the Competition Bureau that clears the way for a deal that will place him at the helm of a sprawling Canadian newspaper chain.
Chief executive Paul Godfrey addressed reporters Wednesday at the company's Toronto headquarters, emphasizing his belief the proposed $316-million purchase of Sun Media's English-language newspapers and digital properties would not have won regulatory approval 20 or even 10 years ago.
"It likely would have caused a heated debate in the House of Commons, probably resulting in another Royal Commission into the newspaper industry," Mr. Godfrey said, later adding that after speaking with provincial and federal leaders, "they all seemed to understand" that the newspaper industry has been altered fundamentally by the proliferation of digital alternatives.
Mr. Godfrey was CEO of the Sun Media newspaper chain in 1999, when the Bureau approved its sale to Quebecor Inc. in the first place. At the time, the competition watchdog said the deal was acceptable because Quebecor's own papers were in different markets, but noted it would not have approved a sale to rival bidder Torstar Corp. because the Toronto Star owner competed vigorously with the Toronto Sun for ad dollars and readers.
"Today is a very different reality for Canadian media. The landscape is just that challenging," Mr. Godfrey said, pointing, as he often has in the past, to the online players that dominate the advertising market, Google, Facebook and Twitter.
"He's right," said Christopher Waddell, associate professor of journalism at Carleton University in Ottawa, adding, "What it really is, is a recognition of the declining influence of advertising in print and the declining influence of newspapers."
Mr. Waddell noted the Competition Bureau – which issued a "no-action letter" stating it does not plan to challenge the proposed deal at this time – was not responsible for considering the cultural importance or the content produced by the newspapers at stake, but simply the advertising market.
"The question becomes: Does one organization control enough of the advertising market in a community that it can set the price of ads and, in effect, drive out any competition?"
After a five-month review, the Bureau decided the deal with Quebecor, first announced in October, "is unlikely to substantially lessen or prevent competition." In a statement, the Bureau pointed to "the lack of close rivalry between Postmedia's broadsheet and Sun Media's English-language tabloid newspapers," existing competition from free local dailies and "increasing competitive pressures" from digital news alternatives.
The deal includes 175 newspapers and digital publications, notably the Sun chain of papers in Calgary, Edmonton, Toronto, Ottawa and Winnipeg along with the London Free Press. Also changing hands are the free 24 Hours commuter dailies in Toronto and Vancouver, the English-language Canoe online portal and more than a million square feet of real estate.
If it goes through as planned, the Postmedia-Sun merger will usher in an unprecedented consolidation of Canada's written news media. Postmedia will own both daily newspapers in three major cities: the Sun and Herald in Calgary, the Sun and Journal in Edmonton, and the Sun and Citizen in Ottawa. It already owns the Vancouver Sun and The Province in Vancouver.
Mr. Godfrey said Postmedia plans to follow the model it uses in Vancouver in its three new dual-newspaper cities, looking for efficiencies through combined finance, human resources, IT and production departments, but maintaining separate newsrooms and keeping both publications open. He said it will have to independently evaluate the business prospects of each of the smaller papers Postmedia is acquiring.
Carleton's Mr. Waddell said Wednesday, "I suspect that a year from now a lot of the publications they bought will either be sold or closed," noting that some would be attractive to buyers and suggesting Torstar as a potential buyer of the London Free Press as an example.
Mr. Godfrey also noted the company plans to sell the chain's real estate assets, which are estimated to be worth in the range of $50-million.
The newspaper company has already secured financing for the purchase, supported by its largest shareholder, the U.S. hedge fund GoldenTree Asset Management. Postmedia issued $140-million of debt subscription receipts and, earlier this month, completed a rights offering that raised $173.5-million.
RBC Dominion Securities analyst Haran Posner called the deal a "much-needed change of course" in a note to clients Wednesday, noting it will give the company more scale and an estimated $6-million to $10-million in synergies as well as improve its debt leverage and free cash flow.
The transaction is still subject to closing conditions, and Postmedia and Quebecor said they expect it to be finalized in the coming weeks.
"The Bureau is a strong advocate for competition, and will continue to ensure that Canadian media markets remain competitive and efficient," said John Pecman, its commissioner.
James Bradshaw