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Torstar, Postmedia and the arrogance of the deal

The November paper-swap deal between Postmedia Network Canada Corp. and Torstar Corp. was apparently nicknamed "Project Lebron," for, one assumes, the Cleveland Cavaliers basketball star who just bedeviled the Toronto Raptors this week.

This is about half right, because the transaction exhibits much of Mr. James's perceived arrogance with little demonstration of his legendary skills.

Certainly, from a financial perspective, the deal was quite nice: In exchanging a total of 41 small properties, the two companies were able to align their geographic footprint while cutting costs, even if it meant they had to "say goodbye to many dedicated newspaper people," as Postmedia chief executive Paul Godfrey said in a statement at the time. About 300 employees lost jobs as more than 30 of the papers closed immediately, or in the weeks after the deal.

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The problem, as we are learning from court documents filed by the federal Competition Bureau, is that the two companies seemed to think the assets were so small – worth $3.5-million on each side of the deal, Postmedia says – that they could eliminate or reduce newspaper competition in markets such as London and the Niagara region and avoid any regulatory scrutiny of the transaction.

Read more: Torstar and Postmedia talked job cuts before deal, Competition Bureau says

Why else, then, would Mr. Godfrey and Andrew MacLeod, Postmedia's top two executives, make the media rounds in November and say the two companies did not know each others' plans – when written agreements between the two, presumably never to be seen by outsiders, seem to make clear they knew them exactly.

Let's go to the tape. In a CBC interview, Mr. Godfrey said: "We did not have any idea what they were going to do and they didn't have any idea." Asked again if Postmedia knew what Torstar would do, he said, "We didn't figure that at all; you only figure that if you knew something. We were more concerned with what we were going to do, and I'm sure they were concerned with what they were going to do."

That looks more and more like an inaccurate statement. As reported by my colleague Susan Krashinsky Robertson, the filings from the Competition Bureau reveal Postmedia and Torstar struck written agreements that arranged for certain shared services only at the papers to remain open, and made reference to jobs at papers that would close. A former employee at a paper traded from Postmedia to Torstar says it was the former owner, not the new one, that said he would lose his job.

And the two companies struck a non-compete agreement covering certain of the geographic areas in the deal, implying that they were exiting the news/advertising business in those markets.

Pierre-Yves Guay, acting associate deputy commissioner of competition for the Competition Bureau's cartels and deceptive marketing practices branch, said in filings that the Postmedia executives made public statements about the deal "inconsistent with actions taken by Postmedia and Torstar and with the terms and conditions set out in the transaction documents."

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Given the pattern of facts laid out by the Competition Bureau, the best course of action may have seemed to be: Do one thing, say another, and bet that no one ever found out. (The bureau has not concluded there has been any wrongdoing, no charges have been laid, and both companies issued statements last week saying they believe the Competition Act was not contravened.)

One would think that in a climate of deep concern about the health of journalism, however, two companies that engage in that business might have better assessed all the risks involved in shuttering small community newspapers, depriving citizens of local news and throwing reporters out of work. And that leads us to wonder, what, exactly, is going on in the boardrooms of these two companies.

Perhaps the moral centre of Postmedia's board of directors is now David Pecker, the CEO of American Media Inc., publisher of the National Enquirer. Mr. Pecker joined Postmedia's board in October, 2016, as part of a package of three directors connected to Chatham Asset Management, a New Jersey hedge fund that gained control of a chunk of Postmedia stock in the company's recapitalization that year.

At the time, it was said that Chatham's investment in American Media, which allowed the company to shift its revenue mix from print to digital, would allow Mr. Pecker to share valuable management knowledge with Postmedia.

These days, however, Mr. Pecker is better known for his friendship with Donald Trump, the endless series of false pro-Trump stories on the cover of the Enquirer, and a $150,000 Enquirer deal with former playmate Karen McDougal that she thought was to publish her story about an affair with Mr. Trump, but which contained language that allowed the newspaper to kill the story instead.

Ms. McDougal has sued to get out of the contract; American Media issued a statement on Tuesday that said she "has been free to respond to press inquiries about her relationship with President Trump since 2016. Thus, the suggestion that AMI 'silenced' her is completely without merit."

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Postmedia's board, led until last November by a nominally independent director, Mr. Godfrey's former Ontario Lottery and Gaming Corp. colleague Rod Phillips, is now run by Mr. Godfrey, who has assumed the "executive chair" title. Postmedia appointed Peter Sharpe, a Postmedia director since 2010, its "lead director" to assist the board in fulfilling its duties "effectively, efficiently and independent of management," but we can perhaps say the jury is still out on this matter.

Torstar's board doesn't have a Pecker problem, but it remains larded with descendants of Joseph Atkinson and business partners of his son. They are all presumably there to not only look out for their fellow shareholders, but also to defend the "Atkinson Principles," which include that publication of the Toronto Star be conducted "for the benefit of the public in the continued frank and full dissemination of news and opinions."

However, in Torstar's proxy circular, it is also said: "As Torstar has become a diversified media company, the Atkinson Principles have remained confined to the operations of the Toronto Star newspaper." Had they governed the entire company, Torstar might have avoided this whole mess.

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