Toronto Star owner Nordstar, Postmedia discuss merger, citing “existential threat” in the industry

Postmedia Network Canada Corp. has confirmed it is in talks to merge with Nordstar Capital LP, the owner of Metroland Media Group and the Toronto Star.

The two publishers say the proposed deal, which has yet to be finalized, is an effort to scale up so they can respond to the “existential threat” facing the media industry.

“The viability of Canada’s newspaper industry is at extreme risk,” said Jordan Bitove, publisher of the Toronto Staraccording to a press release.

Postmedia says the talks are not binding so far, but the proposed merger would provide an even distribution of voting rights. Postmedia shareholders would have an economic interest of 56 percent and Nordstar 44 percent. Nordstar retains a 65 percent stake in Toronto Star Inc.

Bitove, owner of Nordstar, will become chairman of the merged entity and Andrew MacLeod, CEO of Postmedia, will become CEO.

Postmedia, which owns the National Post, Vancouver Sun and Calgary Herald, among others, said the proposal would ensure the Toronto Star maintains editorial independence through the creation of a new company to manage its editorial activities.

It says the deal involves converting a portion of outstanding debt into equity, resulting in “significant economic dilution” for existing shareholders, while reducing the merged entity’s overall debt.

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

“The proposed merged entity would provide the best opportunity to ensure strong news media coverage for Canadians from coast to coast.”

While many of the details have yet to be confirmed, it’s not clear that the deal would lead to better coverage, said Christopher Waddell, a professor emeritus at Carleton University’s School of Journalism and Communication in Ottawa.

“It’s not clear to me … how this achieves what they say they’re going to achieve by being able to invest more money and produce strong news media coverage for Canadians,” he said.

Waddell said the rate of contraction among news organizations has accelerated amid declining ad revenue and visitor numbers, and this deal appears to be the result.

“There’s more than a little desperation.”

Postmedia has been struggling financially for years, saddled with large debts. It reported a net loss of $20.8 million in its latest quarterly results, paying $31 million in interest charges in its last full fiscal year while carrying approximately $275 million in debt.

The company announced significant layoffs in January of this year, affecting about 11 percent of its editorial staff. In recent years, Postmedia has closed a number of small-town newspapers, reduced print production of some titles, and switched some to digital formats to control costs, among other layoffs and buyout offers.

Last week, Jamie Irving resigned as executive chairman of the media conglomerate’s board of directors. He filled the role less than seven months after taking the role when longtime Postmedia chairman Paul Godfrey stepped down.

Postmedia said it confirmed the discussions in light of unusual trading activity, which caused the stock price to rise more than 50 percent that day.