Postmedia In Merger Discussions with Toronto Star Owner, Considers Debt-to-Equity Swap

In response to unusual trading activity, Postmedia Network Canada has officially confirmed that it is engaged in non-binding discussions with Nordstar Capital regarding a potential merger transaction. Nordstar, the owner of Metroland Media Group and the Toronto Star, is considering combining its assets with Postmedia and certain operational assets of the Toronto Star.

The proposed merger would result in the creation of a jointly owned and jointly controlled entity, which is yet to be named. Nordstar would hold a 50% voting interest and 44% economic interest, while existing Postmedia shareholders would have a combined voting interest of 50% and a combined economic interest of 56%.

Jordan Bitove, the Publisher of the Toronto Star and owner of Nordstar, would become Chairman of the merged entity, and Andrew MacLeod, CEO of Postmedia, would assume the role of CEO.

To maintain editorial independence, a new company called Toronto Star Inc. would be incorporated to oversee the editorial operations of the Toronto Star. Nordstar would retain a 65% interest in Toronto Star Inc., and Jordan Bitove would continue as the Publisher of the Toronto Star.

Swapping debt for equity

The merger aims to reduce the overall debt burden by converting a portion of the outstanding debt to equity, resulting in economic dilution for existing shareholders.

“This will result in an overall reduction in debt of the merged entity, providing it with stability to preserve and grow a strong national editorial infrastructure and maintain important brands,” the company said in a statement.

The move comes months after Postmedia was set to announce new cost-cutting measures including cutting 11% of editorial staff from its titles. Company filings show that since 2015, Postmedia has shrunk its workforce by more than half to just 2,098 as of August last year.

Andrew MacLeod, President and CEO of Postmedia, explained the core rationale for the proposed merger, stating, “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. Canadians deserve and expect world-class journalism from trusted sources.”

Postmedia has been hit with the “perfect storm,” MacLeod told employees when the job cuts were announced in January, referring to falling revenue and rising costs due to inflation. The company’s advertising and circulation revenues continued to decline while costs ballooned in its most recent quarter. The company reported a $15.9 million loss in the fourth quarter of 2022 compared to $4.4 million in the same period the year before.

Also back in January, Postmedia announced that it sold the Calgary Herald building to U-Haul Co for $17.25 million.

Bitove echoed the support for the merger, emphasizing the importance of preserving editorial independence and strengthening the newspaper industry in Canada.

“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,” he said.

The potential merger is subject to various closing conditions, and there is no guarantee that definitive agreements will be reached. Postmedia has stated that it does not intend to disclose further developments unless a transaction is entered into or negotiations conclude without an agreement.

Information for this story was found via the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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