Quebecor sells English papers to Postmedia Network for $316 million

Postmedia is scooping up some of the country’s largest newspapers and websites as part of an agreement to buy the English-language operations of Quebecor’s Sun Media for $316 million.

TORONTO — Postmedia is scooping up some of the country’s largest newspapers and websites as part of an agreement to buy the English-language operations of Quebecor’s Sun Media for $316 million.

The move will make the owner of the National Post, and a slate of other digital news properties, a significantly larger player in the print media industry as it moves to compete in the changing media environment.

Postmedia chief executive Paul Godfrey said Sun Media’s digital news 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.”

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.

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.

Some of the country’s biggest media companies have complained that more national advertisers are taking their money to social media operators because of their more favourable rates and massive reach to various demographics.

Google’s advertising division, for example, can let the same advertiser purchase banner ads which run on thousands of popular websites, as well as video spots featured on YouTube.

Postmedia (TSX:PNC.B, TSX:PNC.A) has been one of the most aggressive Canadian media companies in the digital space.

The company launched a redesigned version of the Ottawa Citizen earlier this year, which included 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.

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 expects to find annual cost savings of $6 million to $10 million within two years. While Godfrey didn’t outline exactly where he would tighten expenses, his company has been aggressively cutting some areas of the business to save money and pay off debt.

One of the priorities has been centralizing the editorial production of newspaper pages at a facility in Hamilton, and closing printing plants across the country.

Postmedia has also ended the publication of many Sunday newspapers and sold its original headquarters in Toronto.

Sun Media has undergone its own changes in recent years, including the sale of the Toronto Sun’s building in downtown Toronto to a developer, which has turned it into mixed retail and office space.

While the Toronto Sun still leases space in the building, it has been gradually reducing the amount it uses. The Globe and Mail is expected to move into a new office tower beside the Toronto Sun offices in late 2016.

Postmedia said the Sun Media acquisition 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, New York-based GoldenTree Asset Management LP, has 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.

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