A bid by Postmedia Network Canada Corp. to buy 175 newspapers and online news sites from Sun Media Corp., will hand a group of mostly U.S. investors significant influence over one of the country’s largest media chains.
A behind the scenes look at the bid shows the inner workings of how financial interests, media conglomerates and powerful professional lobby groups play the media deal game in Canada.
The investors driving the media merger are a syndicate of little-known U.S. and Canadian hedge funds that specialize in buying junk bonds from struggling companies. Led by New York-based GoldenTree Asset Management LP, the funds financed the resurrection of Postmedia from a bankruptcy proceeding in 2010 by acquiring $700-million of the company’s bonds. GoldenTree and other investors, including Canadian fund Canso Investment Counsel Ltd., have agreed to buy additional bonds and securities to help finance the Sun Media purchase.
GoldenTree and other investors have pocketed an estimated $300-million since 2010 on Postmedia junk bonds that pay interest rates ranging between 8.25 per cent and 13.3 per cent.
During that same peiod, Postmedia – which owns the National Post amongst many other news outlets – has struggled to make the shift while managing a crushing debt load as it continues to bleed losses. Since it emerged from bankruptcy in 2010, the company has drastically cut its operations to pay off expensive junk bonds which now total about $500-million.
Postmedia has outsourced printing at many of its 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.
Perhaps, most ominously, it has nearly halved its work force in four years to 2,800.
Postmedia’s proposed acquisition of Sun News , code-named Project Canada, would create a national print and online media company with 191 newspapers and dozens of news websites. Backed by these powerful Wall St. investors, Postmedia is in the process of transforming itself from a traditional print newspaper business into a new, low-cost distributor of digital news. If the deal succeeds, it would rank as one of the largest mergers of newspaper assets in Canadian history, bringing rival Postmedia and Sun dailies in Toronto, Calgary, Ottawa and Edmonton under one roof.
A big question is who is really calling the shots in this merger. Insiders say that chief executive officer Paul Godfrey meets frequently with GoldenTree Asset Management head, Steven Shapiro, and other fund investors. In recent months, the fund managers pushed Postmedia’s management to strike a deal with Sun Media despite frustrating delays in negotiations. “Paul doesn’t make major moves without calling them first,” said one deal insider, referring to the Wall St. fund managers.
The purchase is subject to approval by Canada’s Competition Bureau, which is expected to spend months reviewing the bid.
The federal government limits foreign control of Canadian media through Canada Revenue Agency rules that impose a tax burden on advertisements placed in foreign-owned media outlets. Postmedia’s U.S. investors, which own the majority of the company’s debt and shares, sidestepped the restriction by converting their stock into a new class of shares with reduced voting rights.
On the eve of the deal’s announcement, Hill and Knowlton Strategies registered to lobby for Postmedia, “Seeking to allow foreign investment in Canadian newspapers.” Hill and Knowlton Canada is one of the largest lobbying firms operating in Ottawa.
Lifting the tax barrier to foreign investments in media is an ask Postmedia has been pushing for a few years and The Capital Hill Group – another powerful government relations firm – was already registered for the company on the issue.
Woodbridge Company Limited—a holding company owned by the Thomson family and principal shareholder of the Thomson Corporation, which owns The Globe and Mail—is also lobbying on the Income Tax Act as of last week. Torys LLP consultant John Unger registered Oct. 8 to lobby on the company’s behalf on the “Income Tax Act (Canada) in respect of rules related to the control of corporations.”
After Postmedia announced its bid to buy 175 Sun Media newspapers and online news sites on Oct. 6, the union for workers at both media chains said it will be keeping a close eye on the purchase as it unfolds.
Unifor, which represents about 12,000 media staffers across the country, including at Postmedia and Sun Media, cited possible closure and competition as particularly concerning. As such, the union said it will be holding Postmedia president Paul Godfrey accountable to his promise not to shutter any publications as a result of the sale.
“This is a very difficult time for our members, and Unifor will be there for them to protect their rights and their ability to do their jobs effectively, as well as the future viability of this important industry,” said Howard Law, media director for the union.
The growing concentration of media outlets in Canada and the influence of big Wall St. players on the news Canadians get, should be a concern to all Canadians – not just the union and workers at Postmedia and Sun News.
News For Ontario’s 99% will be following this proposed media take-over very carefully over the coming weeks and months, and will continue to provide all the behind the scenes details of the growing media concentration in Canada.