A series of small purchases in thinly traded shares of Postmedia Network Canada Corp. PNC-A-T prompted the country’s largest newspaper publisher to go public with merger talks, on concerns news of the potential deal had leaked.
On Tuesday, the price of Postmedia’s two classes of stock spiked by more 40 per cent, prompting the company to put out a press release saying because of “unusual trading activity” and merger speculation, it was confirming negotiations with Toronto Star owner Nordstar Capital LP. A spokesperson for Postmedia said the company made the decision to issue a release without prompting from regulators.
Market regulators at the Ontario Securities Commission and the Canadian Investment Regulatory Organization declined to comment on trading in Postmedia.
Tuesday’s trading in Postmedia illustrates the market swings that come with sudden spurts of interest in illiquid stocks.
Most days, only a few hundred of Postmedia’s voting and variable voting shares change hands. A widely followed stock such as Shopify Inc. trades 15 million shares each day, with institutions moving blocks worth millions of dollars.
On Tuesday, 14,800 Postmedia variable voting shares and 20,120 of the company’s voting shares changed hands, at prices that ranged from $1.30 to $2.54 per share. The largest purchase was for 4,200 shares at $2.17 each, an investment of just $9,114. Trades this small, in an illiquid stock, almost always reflect buying and selling by individuals.
In the past year, there was only one other day, in January, when more than 15,000 Postmedia shares changed hands. In many TSX sessions, there is no trading in Postmedia stock.
While the volume of Postmedia trading on Tuesday was tiny by Bay Street standards, it was enough to move the stock price and prompt disclosure of a potential deal.
If news of a deal leaks, and someone buys or sells stock in anticipation of a transaction, Canadian regulators have historically taken action, even if profits are minimal.
Last year, the OSC announced it was investigating trading by two Toronto-area programmers for GlobeNewswire, one of the largest wire services in the world. The regulator alleged the pair invested after learning about corporate developments from unpublished press releases, and its initial investigations focused on eight investments that yielded a total of $36,000 in proceeds.
In 2015, a Mississauga man paid $35,000, half his alleged profit, to settle OSC allegations of insider trading in a takeover involving MacDonald Dettwiler & Associates Ltd.
Postmedia, with 130 properties that include papers in most major Canadian cities, and Nordstar said they began merger talks to cut debt and build a business that can better compete with social media giants such as Facebook parent Meta Platforms Inc. and Google owner Alphabet Inc.
The two Toronto-based media companies would share operating control of the new entity, which they have not named, while existing Postmedia shareholders would own a 56-per-cent economic interest and Nordstar – owner of about 70 titles – would hold a 44-per-cent stake.
Nordstar, controlled by entrepreneur Jordan Bitove, would retain a 65-per-cent stake in the Toronto Star, which would become a separate company.
Andrew Willis