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NordStar twice increased its offer for Torstar, whose office building is seen here at Toronto's 1 Yonge St., as the auction played out.

Fred Lum/The Globe and Mail

An Ontario court has delayed the planned takeover of Torstar Corp. after a rival bidder raised last-minute objections to a private equity firm’s $60-million offer for the media company.

Torstar lawyers were in a virtual hearing Thursday at the Ontario Superior Court of Justice for what was expected to be a routine, one-hour session that would see Justice Cory Gilmore approve the sale of the newspaper publisher to NordStar Capital LP, a firm controlled by entrepreneurs Jordan Bitove and Paul Rivett. Torstar shareholders approved the transaction Tuesday, with 98.7 per cent voting in favour of selling the company for 74 cents a share.

However, rival private equity firm Canadian Modern Media Holdings Inc. and former Torstar executive Patrick Collins, who owns more than a million non-voting shares in the company, objected to the deal, arguing the auction process should be extended. Canadian Modern Media filed written arguments for its case Wednesday night.

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At the conclusion of Thursday morning’s hearing, Justice Gilmore said she needed time to review the documents and arguments, and would get back to all parties with a decision via e-mail. She said she recognized the urgency of the proceedings, but did not give a timeline for her decision.

Torstar lawyer Ryan Morris cast the two objecting parties as “a bitter, failed bidder and a disgruntled former employee who should not be permitted to disrupt a robust process.” He said NordStar increased its offer for Torstar – publisher of the Toronto Star newspaper – twice as the auction played out, securing the support of the five families who control Torstar’s voting stock and of major shareholder Fairfax Financial Holdings Inc.

However, Canadian Modern Media’s lawyer Alistair Crawley said the Torstar board shut down the sale process and prevented all shareholders from getting a richer offer when it allowed NordStar to improve its bid for the second time and lock up support from the families – all heirs of former Toronto Star executives.

“The manner in which Torstar’s board permitted NordStar to proceed with its bid – including requiring Torstar’s directors and major shareholders to agree to onerous ‘hard’ lockup agreements and break fee – effectively precluded Torstar from obtaining the optimal value for shareholders by soliciting and considering acceptance of alternative and more favourable bids,” said a court filing by Mr. Crawley, a partner in Crawley MacKewn Brush LLP.

Canada Modern Media asked the court to turn down Torstar’s request to approve the NordStar bid. Instead, Mr. Crawley said the court should tell Torstar’s board of directors to reopen the auction, “to obtain the best offer for shareholders.”

Lawyers and bankers say it would be highly unusual for the court to overturn a transaction that was approved by 98.7 per cent of shareholders, after a lengthy and well-publicized auction. However, Torstar’s stock price closed Thursday up two cents at 76 cents, or two cents above the NordStar takeover offer, showing investors are not ruling out a higher bid.

In addition to the Toronto Star, Torstar owns a collection of regional and local publications, including the Hamilton Spectator, the Waterloo Region Record and the St. Catharines Standard, along with stakes in digital media companies such as VerticalScope Inc. In recent years, long-time Torstar advertisers shifted their spending to other platforms and the company struggled to replace this revenue. In the first three months of 2020, Torstar sales were down 20 per cent compared with the same period a year earlier, at $92.5-million, and the company lost $30.5-million.

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Canadian Modern Media repeatedly missed or ignored deadlines during the five-month auction, according to Torstar’s lawyer. Last week, Torstar chair John Honderich said that in the final round of bidding, on Saturday, July 11, the board twice urged Canadian Modern Media to make its best offer and that the bidder declined to do so.

It did not improve its offer to 80 cents a share until July 20, more than a week after the families and Fairfax gave their support to the NordStar bid. “Would the board like to have that offer? Sure, but they didn’t get it,” said Mr. Morris, a partner at Blake Cassels & Graydon LLP.

Canadian Modern Media was founded by Matthew Proud, chief executive officer of legal software publisher Dye & Durham Corp., his brother Tyler Proud, investment banker Neil Selfe and former Ontario finance minister Greg Sorbara.

Former Ontario premier David Peterson is part of the NordStar team and will take a senior role at the Toronto Star if the bid is successful.

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