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A pedestrian walks past a Toronto Star newspaper box in front of the Toronto Star building at One Yonge Street in Toronto.


In the end, the billion-dollar auction of Canada's largest newspaper chain wasn't even close.

Torstar Corp. and its deep-pocketed financial backer, Fairfax Financial Holdings Ltd. -- once thought to be the favourites to buy the 46 papers that made up the CanWest Global Communications Corp. media empire -- instead placed a distant second in the bidding.

The winning offer this week came from a group of unsecured creditors who trumped Torstar and Fairfax's $800-million offer by $300-million. The $1.1-billion bid came from a consortium that includes U.S. fund manager Golden Tree Asset Management.

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What sealed Torstar's fate as the bridesmaid of the auction was a cautious approach: At a time when interest in media assets is suddenly on the rise, and newspaper stocks are gaining momentum, Torstar tried to go bargain hunting.

Torstar coveted the assets, since the chain of newspapers with titles such as the Montreal Gazette and Ottawa Citizen represented its best opportunity to grow in years. But it was concerns over debt that kept the publisher of the Toronto Star out of the running.

Fairfax, which was bankrolling Torstar's bid, figured a higher offer than $800-million would have put too much debt on the newspaper business, making it difficult to be profitable in the long run, according to a source close to the bid.

Fairfax spokesman Paul Rivett wouldn't comment on the bid specifically, but said the company has confidence in the future of newspapers, including the 19 per cent stake it owns in Torstar. However, too much debt was a concern.

"We continue to believe that the newspaper business is a good business if properly levered," Mr. Rivett said. "Will it stay in its current form? No, it will transition. But if properly levered it will do well."

The senior lenders selling the newspapers, including some of Canada's largest banks, were looking to recoup $925-million they were owed by CanWest.

Fairfax and Torstar went with a lower bid, betting that none of the bidders would meet that amount the banks were looking for.

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The winning bidders, led by Canadian media executive Paul Godfrey, figured the assets had a better upside. Using a $700-million loan supplied mostly by JPMorgan Chase & Co., the unsecured creditors and Mr. Godfrey submitted their knockout bid at the last minute.

The unsecured creditors believe they can now make their money back by taking the company public.

It is the second major newspaper investment JPMorgan has made of late, indicating a more optimistic sentiment toward media assets. The company's investment arm disclosed in regulatory filings this week that it acquired almost $400-million in Gannett Co., publisher of USA Today.

The investment firm now holds a 10.2 per cent stake in Gannett, believing that media companies are now headed for better times after two years in the doldrums of a recession.

The economic downturn that caused advertising revenues to fall at media companies is lifting and the stocks of those businesses are on the rise.

In the past year, Gannett shares have more than tripled, making the company one of the best performers on the Standard & Poor's 500 index. In Canada, Torstar shares have also more than doubled since April, closing at $10.87 Tuesday, from a low of $4.41 in April.

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With the advertising market showing signs of improvement, in mid-April JPMorgan also boosted its profit estimate for New York Times Co. An analyst with the firm singled out Times Co. and Gannett Co. as having the best prospects in a climate where trends in advertising are looking positive.

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Grant Robertson is an award-winning journalist who has been recognized for investigative journalism, sports writing and business reporting. More

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