Paul Godfrey, a veteran media executive with a salesman's touch, has been given the biggest turnaround assignment of his business career, taking charge of Canada's largest newspaper chain after a group of investors won the bidding for it.
The 46 publications, including the National Post, once formed a major piece of the now-crumbling CanWest Global Communications Corp. media empire and were sold Monday to unsecured lenders for $1.1-billion. The deal wraps up an auction process that began when the newspaper unit filed for creditor protection in January.
The creditor group, which is owed hundreds of millions of dollars by the newspaper chain, was declared the winner after offering up $950-million in cash to a collection of Canadian banks selling off the remnants of an insolvent CanWest. The bid trumped a rival offer by Torstar Corp.
Recruited several weeks ago to run the business, Mr. Godfrey, 71, will now be the man leading the newspapers out of bankruptcy court and, he hopes, into a new era of profitability. The group buying the newspapers includes dozens of financial players, such as U.S. fund manager Golden Tree Asset Management, who intend to make their money back by selling the company in an initial public offering this summer.
The deal keeps the newspaper company intact. When the publications emerge from creditor protection in July, none of them will be sold or closed, despite past financial troubles, Mr. Godfrey said. The chain of papers includes 11 large dailies, including the Post, the Montreal Gazette, the Ottawa Citizen and the Vancouver Sun, and 35 small community papers in Western Canada.
The sale, which attracted at least three bidders in the final round, appears to signal rising confidence in the value of media assets after a long slump. The shares of many U.S. newspaper companies have risen sharply this year as the economic recovery has gained strength, though they are still far below the peaks achieved earlier in the last decade.
"There will be changes, but I am not prepared to predict them on day one," Mr. Godfrey said in an interview Monday night. For nearly the past two years, he has served as president of the National Post, which has not turned an annual profit since it was launched in 1998.
"For the last 17 months, I've been getting the National Post much closer to profitability and will have it profitable in the very near future," Mr. Godfrey said. "If there's an obituary about the National Post … it can probably be thrown away."
The closest rival the unsecured creditors faced in the bidding was Torstar, with financial backing from insurance company Fairfax Financial Holdings Ltd. The publisher of the Toronto Star coveted the CanWest newspaper assets and led the bidding right up until the very end, but was unwilling to offer up as much cash as the creditor group did at the last minute.
"We took a hard, long look at this opportunity," Torstar chief executive officer David Holland said in a statement. "In the end, the successful price was well beyond what we were prepared to pay. We wish the new owners well."
The revamped company, which struggled under a crushing debt load that reached $4-billion at the CanWest parent, will focus on the digital future of newspapers, Mr. Godfrey said.
"Between now and the closing of the deal, I will assess everything," he said. "We're going to heavily emphasize the digital world going forward because that's an area where you have got to pay attention to."
The deal is expected to close by July 15 if it receives quick court approval. At that point, the newspapers will emerge from creditor protection and shares in the new entity will be sold off in a public offering. Because many of the unsecured creditors - up to three-quarters of them - are not Canadian, the share offering will involve two classes of shares. Canadian companies will hold the voting shares to keep the newspaper onside with Canadian tax laws.
Mr. Godfrey acknowledged much has changed since the days when he ran Sun Media in the 1990s before it was purchased by Quebecor Inc. But he said he thinks he can revitalize the CanWest papers.
"I think I can. I've got certain ideas, I've got a good management team. I think the opportunities are greater here because they are the number one paper in every jurisdiction," he said.
Analyst Chris Diceman at DBRS Ltd. in Toronto said the billion-dollar bid indicates the assets still carry considerable value, despite eroding circulation in the newspaper industry over the past decade.
"In this landscape, clearly newspapers are worth something. People are willing to pay something for a good stable of newspapers," Mr. Diceman said.
The deal is reminiscent of another recent newspaper auction, for bankrupt company Philadelphia Newspapers LLC, which owns the Philadelphia Inquirer, the Daily News, and news website Philly.com. It was bought for $139-million (U.S.), of which $105-million was cash, by creditors that included Credit Suisse and hedge funds Alden Capital and Angelo, Gordon & Company.
The bidding process
There were two rounds of bidding for the newspapers. Five prospective suitors submitted non-binding bids in the first round, including the unsecured creditors and the bid by Torstar and Fairfax. They were joined by a bid by B.C. newspaper operator David Black, a bid by financial investor Birch Hill Equity Partners Management Inc., and one by former CanWest chief executive officer Leonard Asper, with funding from the Serruya family which owns part of Cool Brands International.
At least three groups submitted binding bids in the second round of bidding, which had a requirement that at least $300-million of their offer be in cash. Those groups included the offer from Torstar and Fairfax, the unsecured creditor offer and the Birch Hill bid.
With reports from Andrew Willis and Jacquie McNish