Final offers to buy CanWest's newspapers are starting to filter in, but in a twist, the highest bidder won't necessarily walk away owning Canada's largest chain of dailies. Instead, cash will be king.
The 46 newspapers are being sold off by creditors that include the country's major banks, which are looking to recoup $950-million owed to them by financially strapped CanWest Global Communications Corp.
As they enter the final stage of the sale, the banks are hunting for cash - even if it means passing on offers that are higher on paper but involve the banks not getting all their money right away, or staying on as creditors.
Sources indicate a bid that includes newspaper owner Torstar Corp. is now emerging as a favourite, since it is expected to involve more cash than other offers.
The publisher of the Toronto Star and 97 other Ontario papers is backed by the deep pockets of Fairfax Financial Holdings Ltd., which owns 19 per cent of Torstar.
Torstar would come aboard as the operator of the CanWest papers, but would limit its exposure by contributing a relatively small amount of its own money, while relying on the financial muscle of Fairfax, the insurance company headed by Prem Watsa.
Among the CanWest assets, Torstar is believed to covet the Financial Post to bolster its flagship paper, the Star.
The banks took possession of the CanWest newspapers after the chain filed for protection under the Companies' Creditors Arrangement Act in January.
"The lenders are motivated sellers. The banks don't want to continue to operate a publishing company," said a banker with ties to the creditor group. "They will be more than willing to consider any offer that allows a quick clean exit."
Five bidders are still in the race as the bidding enters its final days. Each submitted a non-binding preliminary bid in February. Now RBC Dominion Securities Inc., which is overseeing the sale, will sift through the final bids at the end of next week.
Torstar's offer is competing against two unknown financial investors, along with an offer led by B.C.-based newspaper operator David Black, and a bid involving former CanWest CEO Leonard Asper, who is backed by Australia's Macquarie Group and the Serruya family behind CoolBrands International Inc.
The Asper bid is one of at least two bids that are financed with considerable debt, sources say, making them less attractive to the banks.
The chain of papers, known as CanWest LP, consists of 11 large broadsheets such as the National Post, the Montreal Gazette and the Ottawa Citizen, and 35 community papers.
After being eliminated from the bidding last month, Alberta Investment Management Corp. (AIMCo) and National Post president Paul Godfrey have been courted to join other bids. Reached on Wednesday, Mr. Godfrey would not comment.
The investment fund and Mr. Godfrey were turned down in the first round of bidding because their offer was deemed too far below the price the banks are seeking. AIMCo, a $70-billion fund, has a past with newspapers. Its head of private equity, George Engman, backed the buyout of Toronto Sun Publishing while at the Ontario Teachers' Pension Plan in 1996.
With a $950-million price tag, CanWest's creditors, led by Bank of Nova Scotia, are looking to sell the papers for at least seven times earnings before interest, taxes, depreciation and amortization, or EBITDA.
The newspaper sale is being expedited in hopes of having the chain emerge from creditor protection with new owners by late June or July.
Waiting in the wings on any potential deal is B.C.-based Glacier Media Inc., which is interested in buying the 35 community papers and would likely seek an agreement with the winning bidder.
The five remaining bidders have been conducting site tours at several newspapers, and have also been given access to a more detailed data room in the second round of bidding. This could lead some of them to increase their bids, given a clearer financial picture, a source close to CanWest said.