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Postmedia CEO Paul Godfrey walks through the National Post newsroom in Toronto.

DARREN CALABRESE/The Globe and Mail

Postmedia Network Canada Corp.'s $316-million deal to buy 175 newspapers and digital publications marks an unprecedented consolidation of the country's written media and raises questions about the future of newspapers in three Canadian cities.

The bulk of the deal involves Quebecor Media Inc. selling to Postmedia the Sun chain of papers in Calgary, Edmonton, Toronto, Ottawa and Winnipeg along with the London Free Press. The properties changing hands also include the free 24 Hours commuter dailies in Toronto and Vancouver, the English-language Canoe online portal and more than a million square feet of real estate.

The deal, financed by a mixture of debt and equity, comes with a dose of risk. Postmedia already owns competitor papers in many markets across the country, which raises warning flags around competition. In Edmonton, the company would own the Sun and Journal; in Ottawa, the Sun and Citizen; and in Calgary, the Sun and Herald. In Vancouver, it already owns the Province and Sun, which is not part of the Sun chain.

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But executives at the debt-saddled publisher say the deal is a necessary move to scale up its digital might so it can compete with foreign digital giants like Google Inc. and Yahoo Inc., which draw massive audiences that are pressuring traditional media.

"I think the world is different now," said Paul Godfrey, president and CEO of Postmedia and a former head of Sun Media. "I don't consider the other newspapers competitors at all."

The sale is subject to regulatory approvals, including from the Competition Bureau, and could test Canadian rules around competition in media markets. It will create a newspaper behemoth with more than 190 mass market and community newspapers, and more than 12 million unique monthly visitors online.

Quebecor president and CEO Pierre Dion said in a statement that newspaper revenues have fallen "year by year," and that "the Canadian newspaper business absolutely needs consolidation to remain viable and to compete with digital media." Quebecor keeps its French-language titles, including Le Journal de Montréal.

Competition Bureau commissioner John Pecman promised to review the acquisition. Postmedia, which currently owns Canada.com, 10 dailies and six weeklies including the National Post, says it will argue its competition is primarily global.

Yet the sale could put roughly 30 per cent of the country's newspaper market in one company's hands, estimates Dwayne Winseck, a professor at Carleton University and director of the Canadian Media Concentration Research Project. The Competition Bureau has historically been "weak on newspaper consolidation," he said, but "it's a significant increase in market concentration … so [it is] definitely going to be a prime candidate for review."

One person close to the takeover talks said Postmedia is determined to keep the major urban Sun newspapers, but the company recognizes "this is not a slam dunk."

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Postmedia's purchase surprised some observers given that the company has been besieged by financial woes. In August, 2012, the chain launched a three-year plan to cut $120-million in annual operating costs. It has offered buyouts, outsourced printing at many publications, eliminated publisher positions, closed its wire service, sold its Toronto headquarters, cut some Sunday editions and centralized page production for the whole chain in Hamilton, Ont.

The company has no plans to close papers, and will keep competing dailies in major cities, Mr. Godfrey said, but "it's too early to answer" how many job losses might result.

To pay the asking price, Postmedia will issue $140-million of new debt to an existing bondholder, Canso Investment Counsel Ltd., and raise the remaining $186-million through a rights offering backed by the company's largest investor, the U.S.-based hedge fund GoldenTree Asset Management.

The deal was sealed Sunday after on-again-off-again discussions, initiated two-and-a-half years ago by Pierre Karl Péladeau, the media magnate who was then CEO of Quebecor Inc.

The serious negotiations began in late summer, code named Project Canada. But according to people familiar with the talks, they were frequently bogged down by delays and disputes, as Quebecor was slow to provide key corporate documents and the two sides sparred often over asset valuations.

Despite the friction, the two sides were able to reach an agreement combining two sprawling newspaper empires.

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"That's a big bet on the future of this industry," Mr. Godfrey said, "a future often doubted by naysayers."

With reports from Boyd Erman, Jacquie McNish and Christine Dobby

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