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The Globe and Mail

Godfrey wins backers for buyout of CanWest papers

Paul Godfrey


National Post CEO Paul Godfrey has lined up financial support for the purchase of daily newspapers owned by CanWest Global Communications Corp., as the media company's restructuring picks up speed.

Mr. Godfrey, former CEO of Sun Media and the Toronto Blue Jays, has already succeeded in one media buyout and now has private equity backers willing to finance a management-led bid for the storied newspapers currently owned by his employer, sources say. The newspapers are expected to be put up for auction within the next two months, and could fetch $1-billion, as creditors take control of debt-heavy CanWest.

Mr. Godfrey, who took the reins at the National Post in January, declined to make any comment on the CanWest papers, and said Thursday in an interview:

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"I am an employee of CanWest, and my loyalty is to CanWest."

However, sources close to the restructuring say he has been approached by private equity funds that want to buy all or part of the national chain, which includes the Ottawa Citizen, The Gazette of Montreal, Calgary Herald and both major Vancouver papers, the Sun and the Province.

"Private equity funds back winners, and Paul Godfrey is a proven winner. He has no problem finding backers," said one financier involved in the CanWest recapitalization. Several sources say private equity funds see the recession as a time to buy media companies on the cheap.

In 1996, Mr. Godfrey led a $411-million management buyout of what was then Toronto Sun Publishing Corp. The deal proved wildly successful for its backers, which included the Ontario Teachers' Pension Plan.

A portion of the company was sold just over a year later in a deal that valued the chain at $534-million, then the whole works was taken over by Quebecor Inc. for $983-million in 1999. Sources say that Teachers, minority owners in CTVglobemedia Inc. (the parent company of The Globe and Mail), is not backing Mr. Godfrey this time around.

"The challenge for Paul is that other bidders will emerge for those newspapers when they do hit the market," said a lawyer involved in CanWest's restructuring. He pointed to Torstar Corp. as a likely bidder for some or all of the CanWest chain.

CanWest's newspapers are expected to formally go up for sale in the coming weeks, as the Winnipeg-based company announces a restructuring that will see creditors who are owed $2.5-billion swap their debt for equity.

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As part of this recapitalization, lenders that include Bank of Nova Scotia are expected to end up controlling the newspaper subsidiary, CanWest LP, and selling its assets. The Asper family, heirs to the founder of this media empire, are expected to lose control of CanWest.

Restructuring expert Gary Colter, president of consulting firm CRS Inc. and former vice-chairman at KPMG, was recently hired by creditors of the newspaper division to supervise this process. Hap Stephen, another veteran of corporate salvage operations, is playing the same role for lenders to the parent company, which directly owns television networks.

CanWest publishes 12 daily newspapers, most of which dominate their local markets, along with the National Post, which gives the chain its presence in Toronto. If the economy continues to rebound, analysts project these papers will churn out $200-million of earnings before interest, taxes, depreciation and amortization (or EBITDA) next year. Publicly traded newspaper chains are currently changing hands at five times their forecast EBITDA, which means the entire stable of CanWest papers could command $1-billion.

CanWest's latest deadline for negotiations with creditors is Oct. 31, but both sides have extended talks repeatedly since the company first missed interest payments on its debts last spring. Sources say one of the reasons for the delays is that ownership of the National Post needs to be shifted from the parent company to CanWest LP, and that takes approval from a number of different groups of lenders.

Creditors are also said to be trying for a clean, well-organized restructuring that is likely to include a court-approved plan to deal with creditors, and what's known as stalking-horse bids for some of the company's media holdings.

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