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The offices of the Toronto Star and Postmedia, both located in Toronto.Melissa Tait/The Globe and Mail

The parent companies of the country’s two largest newspaper chains are in merger talks, working on a deal they said would cut debt and build a media business better able to compete with global digital platforms.

Postmedia Network Canada Corp., with 130 properties that include papers in most major Canadian cities, and Toronto Star parent Nordstar Capital LP said Tuesday they are in talks to combine operations. Their proposed union comes at a time when social media giants such as Facebook parent Meta Platforms Inc. and Google owner Alphabet Inc. are threatening to block access to Canadian news on their platforms as part of a continuing battle with the federal government over regulation of the internet.

The two companies would share operating control of the new entity, while existing Postmedia shareholders would own a 56-per-cent economic interest and Nordstar – owner of about 70 titles – holding 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.

Mr. Bitove would be chairman of the combined companies while Andrew MacLeod, chief executive officer of Postmedia, would be its CEO. Mr. Bitove would remain publisher of the Toronto Star. Postmedia owns the Vancouver Sun and Province newspapers, Edmonton Journal, Calgary Herald and Montreal Gazette. Nordstar’s portfolio includes the Hamilton Spectator and the Waterloo Region Record.

“The viability of the newspaper industry in Canada is at an extreme risk, especially in the small towns and communities that are important to this nation,” said Mr. Bitove in a release. “By pooling resources and working collaboratively, we can ensure that more Canadians have access to trusted journalism and quality reporting.”

The two companies made an announcement at the request of regulators, after the price of Postmedia’s PNC-A-T thinly traded stock jumped by 46 per cent Tuesday on the Toronto Stock Exchange. A generation back, both companies were valued at billions of dollars and the families that owned them were among the wealthiest in Canada. Now, Postmedia’s equity is worth $186-million.

“The core rationale for the proposed merger is to create a new entity with reduced debt, national digital scale to compete with the global technology giants and economies of scale in the business model,” Mr. MacLeod said in a press release.

Postmedia has $261-million in debt, and lost $36.7-million in the first six months of the year, after losing $26.5-million in the same period a year ago. Over the past six months, the Toronto-based company paid $16.9-million in interest on its loans. The bulk of the company’s debt, $240-million, is at a 10.25-per-cent interest rate. In announcing negotiations with Nordstar, Postmedia said: “The merger contemplates a significant reduction in overall debt through a conversion of a portion of the outstanding debt to equity.”

Unifor, the union that represents employees at both companies, said it is concerned any transaction will result in job losses. “The sector has been in a continuous and sometimes rapid decline,” said Lana Payne, president of Unifor, in an e-mail. “We at Unifor are deeply concerned about the continued consolidation of our Canadian news media.”

Any transaction between Postmedia and Nordstar will require approval from the Competition Bureau of Canada. The competition watchdog investigated a 2017 transaction in which the two companies swapped 41 community newspapers and subsequently closed 36 of the properties, and decided not to take any action.

Both traditional media companies are struggling to deal with declining print advertising and circulation revenue, as ad dollars have shifted to big tech platforms such as Google and Facebook. Postmedia has also been saddled with its large debt load its hedge fund owner took on after the company emerged from the bankruptcy of Canwest Global Communications Corp.

Marc Edge: Postmedia is in a crash dive – Ottawa should let it decline

Postmedia and Nordstar, owners of traditional media platforms, are potentially among the biggest beneficiaries of the federal government’s passing of Bill C-18, which forces tech giants to pay outlets for posting their journalism on the digital platforms. Facebook and Google oppose the legislation.

Postmedia has repeatedly slashed costs and laid off employees over the past few years. Postmedia said in January it would lay off 11 per cent of its 650 editorial employees, move a dozen Alberta community newspapers to a digital-only format and sell and sublease offices in Saskatoon and Regina. In January, Postmedia sold the Calgary Herald’s head office for $17.25-million to U-Haul Canada Ltd., which plans to turn the building into a storage facility.

Torstar, meanwhile, has faced similar challenges. Mr. Bitove formed Nordstar with Paul Rivett to purchase Torstar for $60-million in 2020. By that point, the company’s share price had crashed 99 per cent from its peak in 2004. Torstar lost $51.9-million in its last year as a publicly traded company. After the acquisition, Nordstar expanded into delivery services and online gambling.

Mr. Bitove and Mr. Rivett fell out over cost-cutting plans and strategic direction for the company and later settled their dispute, with Mr. Bitove becoming the sole owner in November. Since then, Mr. Bitove moved to outsource printing operations for a number of titles and sell the company’s only remaining printing facility. He has also called for Canadian companies and governments to increase their ad spending with local media outlets, and cut spending with large tech companies.

Postmedia is majority owned by Chatham Asset Management, a US$4-billion, New Jersey-based hedge fund that also owns the National Inquirer and McClatchy chain of media properties, which include the Miami Herald. In April, Chatham and its founder paid US$19.3-million to settle allegations of improper trading by the U.S. market regulator, the Securities and Exchange Commission.

Postmedia acquired many of its 130 titles by purchasing rival purchasers. The company, formerly controlled by the Southam family, then by Conrad Black, bought the Sun Media newspaper chain in a $316-million deal in 2015. Last year, the company paid more than $16-million to buy Brunswick News Inc., publisher of the Telegraph-Journal in New Brunswick, from the billionaire Irving family.

Last week, former Brunswick news executive Jamie Irving stepped down as executive chair of Postmedia after less than six months in the role. A third-generation member of the Irving clan, he took over as publisher of the Telegraph-Journal at age 27.

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