Newspaper publisher Postmedia is buying Sun Media’s 175 English-language newspapers for $316 million in cash, Postmedia announced Monday.
The purchase includes the Toronto Sun, as well as the Sun dailies in Ottawa, Winnipeg, Calgary and Edmonton, the free 24 Hours daily newspapers in Toronto and Vancouver and the London Free Press.
“This investment by Postmedia is a strong endorsement of the future of the Canadian newspaper industry and made-in-Canada journalism,” Postmedia board chair Rod Phillips said in a press release on Monday morning.
The deal also includes the Canoe website and the Islington, Ont., printing plant, the release said. Postmedia CEO Paul Godfrey, who had been president and CEO of Sun Media said the Sun's “major market” dailies and online news outlets would continue to operate.
“We intend to continue to operate the Sun Media major market dailies and their digital properties side by side with our existing properties in markets with multiple brands as we have in Vancouver with the Province and the Vancouver Sun for more than 30 years,” he said.
“This acquisition brings together an impressive stable of brands that collectively create a stronger Canadian media platform that is better positioned to compete against foreign-based digital offerings and offers a greater range of choices to our readers,” Godfrey said.
The deal requires approval of the Competition Bureau, a process expected to take four to six months.
Decades ago, regulators would have been loathe to allow two newspapers under the same ownership to continue operating.
But Godfrey said times have changed.
“The world is dramatically different now. I don’t consider newspapers competitors at all. It’s Google, Facebook and every other major website that’s taking all the revenue away from us.”
The combination is expected to cut $6 million to 10 million a year in costs through synergies. Godfrey did not rule out future job cuts. “It’s too early to say,” he said.
Some Sun Media properties will get additional staff, he said, because “they’d become too thin and need some boosting up.”
The deal would be funded with a combination of equity and debt and sale of real estate assets, the company said. A prospectus would be filed in January 2015.
Postmedia would add $140 million to its first lien 8.25 per cent notes due 2017 and raise $186 million, less any net proceeds of real estate sales, through an equity rights offering backstopped by Golden Tree Asset Management.
The purchase of debt-free Sun Media will lower Postmedia’s debt load.
The two companies first began talking nearly two-and-a-half years ago, Godfrey said, when Pierre Karl Peladeau, who was then president and chief executive officer of Quebecor, approached him with the idea of buying Postmedia.
Sun Media rejected the idea.
Discussions resumed, Godfrey said, after Peladeau entered Quebec politics. But the tables had turned. Now, Postmedia was in a position to buy Sun Media, with the backing of its largest shareholder, Golden Tree Asset Management, Godfrey said.
“That’s a big bet on the future of this industry, a future often doubted by naysayers,” Godfery said. The deal will give Postmedia the scale it needs to compete in a digital world dominated by foreign-owned giants, he said
“When the transaction is approved, we will be able to offer advertisers the opportunity to reach the full scale and scope of their target audiences with a Canadian option for their marketing programs.”
Postmedia is at least $488 million in debt. It lost $20.6 million in the third quarter of 2014 and $160 million in 2013.
The company’s revenue from print advertising declined by 14.3 per cent during the third quarter of 2014.
Postmedia will pay for the purchase by selling more shares to current shareholders and with more debt.
The company also plans to use the proceeds of future real estate sales, which it expects could bring in as much as $50 million.
Postmedia has cut dozens of jobs at its newspapers and printing presses across Canada and sold off real estate.
Recent layoffs include 54 full-time staff and 61 casual staff at the company’s Montreal printing press, 48 at a call centre in Calgary and 60 at a printing press in the same city.
The company has cut dozens of newsroom employees through a series of buyouts at most of its newspapers.
Sun Media cut about 1,000 jobs last year, with 200 employees laid off last December. Quebecor has about 2,400 full-time employees while Postmedia has about 2,800.
The deal will allow the company to save between $6 million and $10 million each year within the next two years through “cost synergies” – savings through the elimination of duplication of work.
“How we integrate all of our brands will be the challenge once the transaction closes,” Godfrey said in the memo.
The deal “comes at a time when the Canadian newspaper business absolutely needs consolidation to remain viable and to compete with digital media,” Pierre Dion, president and CEO of Quebecor, Sun Media’s parent company, said in a press release on Monday.
The deal does not affect the Journal de Montréal – the largest newspaper in Quebec – or the Journal de Québec. TVA and Sun News Network, Quebecor’s television properties, are also not included in the sale.