PostMedia and Toronto Star In Merger Talks and No One is Happy About It

Two large Canadian media chains, PostMedia and Toronto Star, are in talks to merge. Everyone admits things are declining.

While Heritage Minister, Pablo Rodriguez, is inadvertently on a campaign to drive the platforms from Canadian news links faster abroad, the potential wide ranging damage the legislation is having is continuing to show back here at home. The financial losses are already piling up with big publishing thanks to Meta’s response to Bill C-18 which involves cancelling agreements with publishers. This along with Bell slashing 1,300 jobs and shutting or selling 9 radio stations.

Probably the most disastrous thing of all is the fact that this is likely the tip of the iceberg. When the lever is pulled to fully shut down news links in Canada – a move that is expected to happen within the next six months as the government goes through the coming into force process of the new law – the chaos and destruction will really set in. We will know for sure who got swept in and who didn’t in the platforms interpretation of what to scrub from their services. Worth noting is that our speculation concludes that we likely won’t be affected, though we won’t know for sure until that lever is actually pulled. For larger outlets, however, the damage ranges from this being a minor inconvenience to the move being the end of their news organization. The Canadian news landscape is seemingly destined to look apocalyptic with shutdowns, massive layoffs, and severe spending cuts.

Another sign that are going to get ugly? Two of the largest newspaper chains in Canada are in merger talks. Simon Houpt noted this, expressing surprise that the rumoured talks were real:

University law professor, Michael Geist, commented on the developments:

After caving to lobby interests on Bill C-18 with mandated payments for links, @pablorodriguez is rewarded with blocked news sharing, millions in losses, Canada as a model for what not to do, and…a potential merger eliminating even more news competition.

The news spread to the traditional media afterwards as well. From The Toronto Star:

NordStar Capital, the company which controls the Toronto Star and Metroland Media, is in talks to merge with Postmedia, the publisher of the National Post, Toronto Sun and other daily papers across the country.

In a press release issued Tuesday afternoon, NordStar described a potential deal that would see NordStar and Postmedia each having a 50 per cent voting stake in an as-yet unnamed company which would control most of the combined assets of both companies.

A separate company, called Toronto Star Inc., would be created for the editorial assets of the Toronto Star with the goal of ensuring editorial independence, the release said. NordStar would have a 65 per cent stake in Toronto Star Inc. and NordStar owner Jordan Bitove would remain publisher of the Star.

Bitove would be chairman of the merged company, while Andrew MacLeod, chief executive of Postmedia, would be CEO. Any agreement to merge would be subject to regulatory approval.

“The viability of the newspaper industry in Canada is at an extreme risk, especially in the small towns and communities that are important to this nation. By pooling resources and working collaboratively, we can ensure that more Canadians have access to trusted journalism and quality reporting. This will strengthen our democracy and protect the fabric of our country,” said Bitove. “Preserving the editorial independence of our newsrooms, including the Toronto Star, is of particular importance to this arrangement going forward.”

“The core rationale for the proposed merger is to create a new entity with reduced debt, national digital scale to compete with the global technology giants and economies of scale in the business model,” said MacLeod.

“The news media industry in Canada and around the world is under existential threat, new models are urgently required. Scale, reach and efficiency are all prerequisites for future success and to compete with the global technology platforms,” MacLeod added.

A highly worn path with these mergers is that a merger or buyout happens, there is a cooling off period for people to forget the merger happen, then start closing down offices and issuing mass layoffs and announce massive cost cutting measures in a big to reduce “redundancies” in the workplace. This seems to almost always happen when mergers and buyouts happen.

Now, normally, when a merger is announced like this, people who are behind the deal are thrilled that this is happening. A new mega company coming into being, reduced competition and more market power and assets to work with. What’s not to like? Well, in this case, even the Toronto Star is admitting that this is more of a survival tactic as things continue to decline for both chains. In another report, we see the following from The Hamilton Spectator:

TORONTO – A potential merger between Canada’s two largest newspaper chains could mark the next step in the decimation of Canadian news, which has seen dwindling jobs and widening coverage gaps, say those who study the industry.

Postmedia Network Canada Corp. said Tuesday that it’s in talks to merge with Nordstar Capital LP, the owner of Metroland Media Group and the Toronto Star.

But even with such assurances, the talks raise alarm bells for those who say they’ve heard similar promises before.

“We saw the merger between the old Postmedia Southam newspapers and the Sun chain and it certainly didn’t add anything to local coverage. It just resulted in more lost jobs, more amalgamation and less news and that’s kind of how I see this going again,” said Brad Clark, a journalism professor at Calgary’s Mount Royal University.

“I’m deeply concerned that we’ll see newsrooms combined, we’ll see fewer people in legislative assemblies and House of Commons covering the important news of the day. I think this is quite a blow.”

In 2015, Postmedia purchased 175 Sun Media newspapers from Quebecor for $316 million, saying it planned to keep separate newsrooms in markets where it would operate multiple dailies. The following year, it cut 90 jobs as it merged newsrooms in four major cities, where once-rival newspapers began publishing often identical content as one another.

Job losses at the company have continued, with Postmedia laying off 11 per cent of its editorial staff earlier this year, less than a week after employees were told it was grappling with “economic contraction.’’

“I don’t think anyone is optimistic enough to see that there’s a great future here,” noted Toronto Sun sports columnist Steve Simmons, who has spent 36 years with the company.

More mainstream journalists don’t seem that optimistic that the future is so bright. From the Maple:

The news of Postmedia’s potential merger with Nordstar prompted concern and anger from journalists on Twitter.

The Globe and Mail’s economics reporter Matt Lundy pointed out that Postmedia’s share prices bounced early in the day on Tuesday. He tweeted: “I’m sure the 50% bounce in Postmedia shares today, before this press release went out, will be thoroughly investigated by our securities regulators.”

Ricochet’s managing editor Andrea Houston wrote: “This is the worst possible news. I feel sick to my stomach.”

Writer Jeet Heer pointed out: “Virtually all of Canadian private media is going to be owned by right-wingers.”

Others believe that the financial future isn’t that bright. From The Globe and Mail (likely paywalled):

Postmedia, which is making interest payments on its $288-million in debt by borrowing more money from hedge fund lenders, is in talks to combine forces with Torstar owner Nordstar Capital LP.Fred Lum/The Globe and Mail

The potential merger of the country’s two largest newspaper chains will lighten a crippling debt load for one of the partners, Postmedia Network Canada Corp., but industry experts say the union would do little to address the media companies’ structural challenges.

Postmedia PNC-A-T, which is making interest payments on its $288-million in debt by borrowing more money from hedge fund lenders, is in talks to combine forces with Torstar owner Nordstar Capital LP. Postmedia owns 130 properties, including papers in most major Canadian cities, while Nordstar owns about 70 titles. On Tuesday, the two companies said a merger would better position the business to compete with global digital platforms.

After borrowing to pay for a series of takeovers, and going through two previous financial restructurings, Postmedia is now working on a transaction the company said will see a “significant reduction in overall debt through a conversion of a portion of the outstanding debt to equity, resulting in significant economic dilution to existing shareholders.”

New Jersey-based hedge fund Chatham Asset Management LLC will swap almost all of its $262-million in loans to Postmedia for equity in the combined companies, according to two sources familiar with the terms of the proposed transaction. The Globe and Mail agreed not to name the sources because they are not authorized to speak for the companies.

In the first six months of the year, Chatham’s loans to Postmedia increased by $12.6-million as the media company issued more payment-in-kind bonds to the hedge fund, rather than making interest payments. The bonds pay 10.25-per-cent interest. Postmedia lost $36.6-million in this period, up from a $23.5-million loss in the same period a year ago. Chatham first invested in Postmedia in 2016, and also owns the National Enquirer and McClatchy chain of media properties.

Other reports indicate that there would be no resistance from anti-trust regulators. That much was obvious since Canadian anti-trust regulators will rubberstamp anything and everything that gets sent their way. Canada really only has anti-trust regulation in name only.

One thing is for sure, layoffs and spending cuts are pretty much almost a sure thing at this stage. The horrendously bad bet that platforms are just going to hand money over to the large publishers didn’t pan out. Of course, the decision for platforms to drop news links likely wouldn’t have mattered much in this case as the merger means that more hacking and slashing of jobs was going to happen regardless. With Bill C-18 predictably blowing up in the lobbyists and governments faces, the situation is only going to look worse for the large media outlets.

No one is happy about the merger. Of course, the blame rests on those calling the shots in all of this. The large media organizations could have found ways of adapting to the digital age as readers continued to move to the online world, but for many, the decision was made that the internet was just a fad and that it would go away on its own… eventually… sooner or later… any day now. Some, meanwhile, took baby steps while still insisting that printing the news on dead trees and sending that old news out to the public – and charging them for that old news – is the business model of the future because it worked so well in the 70’s and 80’s. The outcome you see today was inevitable, really.

With the large media companies shooting themselves in the foot with Bill C-18, the worst is still yet to come. Everything about this is so self-inflicted: the attitude of business as usual, thinking that the world revolves around them, expecting platforms to pay for linking, letting hedge fund management run things in the background, the mass consolidation, and a whole lot more. If I was a journalist working in any of the affected news rooms, I’d consider things like writing my resume and looking towards the future. The ship is sinking due to the operations being run by idiots. Sooner or later, it’ll be every man and woman for themselves.

Drew Wilson on Twitter: @icecube85 and Facebook.

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