The potential new owners of Torstar Corp. plan to raise more than $100-million with moves that include selling the media company’s minority stakes in online companies and reinvesting the money in a digital transformation of the core newspaper business.
Torstar filed documents with securities regulators Monday to pave the way for the sale of the 70-newspaper chain to NordStar Capital, which is owned by entrepreneurs Jordan Bitove and Paul Rivett. According to sources working with both companies, potential buyers are already making preliminary offers for Torstar’s minority stakes in other businesses, including VerticalScope Inc., Eyereturn Marketing, Blue Ant Media Inc., Black Press Ltd. and Nest Wealth.
The sources, whom The Globe and Mail is not identifying because they are not authorized to speak for the company, said NordStar expects to sell one or two holdings quickly and put the money into Torstar digital platforms, which are tied to city papers such as the Toronto Star and The Hamilton Spectator and a collection of community newspapers.
“Between the declining industry and COVID, they recognize the media business faces major challenges that will take time to fix. And they want to ensure we have capital to invest in the business, even if they have to raise other equity or sell some assets after closing” said a source close to NordStar.
NordStar has also lined up bond financing for Torstar, which currently has no debt. That money is coming from Canso Investment Counsel Ltd., which is also a major lender to Postmedia Network Canada Corp. and Surrey, B.C.-based Black Press, which publishes 170 newspapers.
In late May, NordStar offered to buy Torstar for $52-million, or 63 cents a share – a bid that was increased 11 per cent over its initial offer in order to win the board’s support and fend off rivals, documents show. A shareholder vote on the takeover is scheduled for July 21.
The takeover bid marked the conclusion of a 10-month sale process at family-controlled Torstar that saw the company’s financial advisers reach out to 26 potential buyers, according to paperwork filed as part of the takeover. Sources say the list included Postmedia, The Globe and Mail, St. Joseph Communications, Fairfax Financial Holdings Ltd., Corus Entertainment Inc. and a number of wealthy families who have traditionally backed the Toronto Star’s progressive values, including Gerry Schwartz and Heather Reisman, the couple who respectively control Onex Corp. and Indigo Books & Music Inc.
Torstar’s board of directors hired Markenz Group Capital Partners to run the sale. The boutique investment bank was co-founded in 2008 by Scott Dorsey, who previously ran the media, tech and telecom team at Scotia Capital Inc. In documents filed ahead of the shareholder vote, Torstar said, “Markenz reported that most parties contacted were not interested in considering a possible transaction, and that of the parties expressing interest, most had concentrated on the acquisition of specific assets of the corporation, rather than a broader strategic transaction.”
For much of its 128-year history, Torstar relied on print advertising in its newspapers for dependable revenue and consistent double-digit profit margins. The company lost those sales in recent years as advertisers shifted to online platforms such as Google and Facebook, and its share price fell steadily. 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 $23.5-million.
Against this backdrop, the takeover documents show Torstar’s board of directors hired a consulting firm last August to advise on strategic options. Based on a report from the firm and management’s input, Torstar put its 56-per-cent stake in VerticalScope and its community newspaper business up for sale in September. It had paid $200-million in 2015 for its stake in VerticalScope, which runs online forums, including sites for car and motorcycle owners.
At a board meeting in October, documents show the directors decided to also consider offers for the entire company. At the same meeting, the board suspended the common share dividend to conserve cash, a move sources say convinced members of the five families who control Torstar through their ownership of the company’s voting stock that it was time to sell. The board hired Markenz in mid-January, and the investment bank began contacting potential buyers.
NordStar was the first to step up. With Torstar trading at 48 cents a share, Mr. Bitove offered to buy the company for 56.6 cents a share on Feb. 10, documents show. Insurer Fairfax Financial, which owns 40 per cent of Torstar’s non-voting shares, told the Torstar board that while it would prefer to see a better offer, it would sell at this price.
However, in late February, a special committee of the Torstar board told NordStar the offer was “not acceptable.” On March 18, NordStar bumped up its offer to 63 cents. Sources at Torstar said the fact Mr. Bitove improved the offer while the company was coping with the economic fallout from the pandemic impressed the board.
At this point, regulatory filings show, Torstar was negotiating with four other potential buyers, all unnamed. Markenz told the board that while the four bidders signed confidentiality agreements, “based on discussions with such parties, the prospect of an offer from any such party at a price above the indicative price in the increased proposal [63 cents per share] was low.”
NordStar asked Torstar to enter exclusive negotiations for 45 days. The media company agreed. Mr. Rivett, a former president of Fairfax Financial, joined NordStar in late March. After weeks of talks, the two sides agreed to a deal on May 26. Documents show that while the Torstar board and the five families recommended shareholders accept the bid, the vote on the sale came with “one director, Martin Thall, dissenting on the basis that the corporation should continue its review of strategic alternatives in order to solicit and consider alternative transactions.” The Thall family is one of the five that have controlled the company since 1958.
The NordStar offer represents a 67-per-cent premium over where Torstar shares were trading prior to the announcement of the bid in May. If the transaction does not go forward, the side that walks away will owe the other party $3.5-million as part of what is known as a break fee.
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