Postmedia Network Canada Corp. announced a deal to buy Sun Media Corp.’s English-language operations from Quebecor on Monday for $316 million in a deal that it says gives it the scale to compete in the changing media environment.
Postmedia chief executive Paul Godfrey said Sun Media’s digital properties, including the Canoe website in English Canada, were key to the deal.
“Digital audiences are unbelievably valuable to this strategic acquisition,” Godfrey told a news conference.
“Over time our hope is that Canoe and all of the other related websites may very well become the jewel of the deal.”
Godfrey said scale is important, especially in the digital world.
“We need this scale and of course time to be able to compete with the giant foreign-owned digital-only companies like Google, Facebook, Yahoo, Twitter, etc.,” he said.
The deal includes 175 newspapers and publications, including the Sun chain of daily newspapers as well as the London Free Press and the 24 Hours dailies in Toronto and Vancouver.
The sale also includes part of the national sales team based in Toronto, Quebecor’s Islington printing plant in Ontario and 34 real estate properties in Ontario, Alberta and Manitoba.
The purchase price is subject to a $10-million adjustment related primarily to properties to be sold by Sun Media prior to closing, and other customary adjustments.
Postmedia (TSX:PNC.B, TSX:PNC.A) already has one of Canada’s largest chain of daily newspapers including the National Post and dailies in Montreal, Ottawa, Calgary, Edmonton and Vancouver. Digital, however, is seen as the future for the newspaper publisher.
The company launched a redesigned version of the Ottawa Citizen earlier this year with a new look for the newspaper and website as well as new apps for smartphones and tablets. It also expects to redesign most of its other newspapers, except the National Post and Vancouver Province, by next summer.
The sale by Quebecor (TSX:QBR.A, TSX:QBR.B) follows its sale of 74 weekly newspapers in Quebec to Transcontinental for $75 million earlier this year.
Quebecor Media still has Le Journal de Montreal, Le Journal de Quebec and the 24 Heures free daily as well as Internet, television, telecommunications and retail operations.
The sale is subject to approval by the Competition Bureau.
John Pecman, commissioner of competition, said the bureau will review the deal.
“While media ownership concentration can raise other public interest concerns, under the Competition Act the bureau’s mandate is to review mergers exclusively to determine whether they are likely to result in a substantial lessening or prevention of competition,” Pecman said in a statement.
Quebecor president and chief executive Pierre Dion said the deal comes at a time when the Canadian newspaper business needs consolidation to remain viable and to compete with digital media.
“The transaction will also keep Sun Media Corp.’s properties in the hands of a well-established Canadian group,” Dion said in a statement.
“Postmedia possesses extensive expertise and the ability and will to invest in these publications’ long-term development. This is good news for the Canadian newspaper business and the people who work in it.”
Postmedia said it expected to find $6 million to $10 million in cost savings per year within two years.
The purchase will be financed with the issuance of an additional $140 million in senior secured notes by Postmedia and a rights offering of subscriptions receipts for shares in the company.
Postmedia’s largest shareholder, GoldenTree Asset Management LP, as agreed to a standby agreement to buy any subscription receipts not otherwise subscribed for under the rights offering.
GoldenTree has also signed a voting restriction agreement with Postmedia that will limit the number of votes that it will be entitled to cast at any meeting of Postmedia’s shareholders to one-third, less one share, of the total number of outstanding voting rights.