Postmedia Network Canada Corp. has struck a special board committee to oversee a review of its struggling business, as its largest shareholder continues to take steps toward an exit.
Announcing another quarter of losses driven by print advertising revenue declines and a large writedown on assets, Canada's largest newspaper chain said Thursday that its management will review options to improve its "capital structure and liquidity," overseen by a group of independent directors.
A key director also resigned from Postmedia's board, effective immediately. Ted S. Lodge, a partner at GoldenTree Asset Management, which owns more than half of Postmedia's class B shares, stepped down after less than three months on the board. His U.S.-based fund has recently been trying to sell its stake in the newspaper chain, which includes a portion of Postmedia's debt, with help from Canaccord Genuity Group Inc.
The moves cast further doubt on Postmedia's already uncertain future.
As GoldenTree looks to unload its stake, speculation has been swirling that Postmedia could be heading for a restructuring. Its debt now trades at a deep discount, while its shares hover around 5 cents on the Toronto Stock Exchange, and rarely trade. The company is continuing a pattern of deep cost-cutting to cope with its declining revenue, but says it will now look at other options, including "non-core asset sales … revenue enhancements and initiatives, refinancing or repayment of debt and the issuance of new debt or equity."
Asked whether the formal review signals that a restructuring will be necessary, Postmedia president and chief executive officer Paul Godfrey said in an interview, "It may, or it may not. It depends on a number of factors."
GoldenTree had been active in the company's financial affairs. "The fact that Mr. Lodge has left the board now provides another sort of wrinkle in things going forward. We don't know what their position is," Mr. Godfrey said, though he added that GoldenTree has been a "terrific" partner.
Mr. Lodge did not respond to requests for comment.
As the fund manager begins stepping back, however, Postmedia's most influential investor is likely to be Canso Investment Counsel Ltd., a fund based in Richmond Hill, Ont., which owns much of Postmedia's first-lien debt.
Postmedia also reported a $225-million second-quarter loss on Thursday, or 80 cents a share, due in large part to a $187-million non-cash impairment to the value of its titles and the company's goodwill. That compares with a $58.2-million loss, or $1.45 a share, in the same quarter a year earlier.
Revenue for the second quarter, which ended Feb. 29, was $209.1-million, up from $145.4-million a year earlier thanks to Postmedia's acquisition of Sun Media newspapers and digital assets in April, 2015. Excluding the Sun results, revenue was down 13.1 per cent for the second quarter.
That decline was driven mainly by continuing problems in Postmedia's key revenue areas: Print ad revenue fell 18.3 per cent year-over-year, while print-circulation revenue dipped 8 per cent and digital revenue fell 4.2 per cent.
While revenue declined, Postmedia's second-quarter interest payments on its $668-million debt also increased 6.6 per cent, to $19.1-million, even as it repaid $16.3-million in first-lien notes.
The company has undertaken several initiatives aimed at creating new revenue, including creating an in-house content-marketing service. It also struck an unconventional deal with Mogo Finance Technology Inc., an online provider of short-term loans. Mogo will receive $50-million worth of Postmedia advertising space, and in return Postmedia gets a cut of Mogo's revenue and an option to buy into its stock at a fixed price.
While it explores its options, Postmedia continues to slash costs. It cut $23-million in yearly costs in the most recent quarter, mostly by merging newsrooms in four cities, but also by consolidating printing. The company expects to cut $80-million in annualized costs by the middle of its 2017 fiscal year.