Toronto Star owner Nordstar, Postmedia discuss merger, citing 'existential threat' in industry

Postmedia Network Canada Corp. has confirmed that 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 is yet to be finalized, is a bid to create greater scale so they can respond to the "existential threat" facing the media industry.

"The viability of the newspaper industry in Canada is at an extreme risk," Jordan Bitove, publisher of the Toronto Star, said in anews release.

Postmedia says the discussions so far are non-binding but that the proposed merger would see an even division of voting rights. Postmedia shareholders would hold a 56 per cent economic interest and Nordstar would hold 44 per cent. Nordstar would retain a 65 per cent interest in Toronto Star Inc.

Bitove, owner of Nordstar, would be chairman of the merged entity, and Andrew MacLeod, chief executive of Postmedia, would be CEO.

Postmedia, which owns publications including the National Post, Vancouver Sun and Calgary Herald, said the proposal would see the Toronto Star maintain editorial independence through the incorporation of a new company that would manage its editorial operations.

It says the deal would involve converting some of its outstanding debt to equity, resulting in "significant economic dilution" to existing shareholders, while reducing the overall debt of the merged entity.

"The core rationale for the proposed merger is to create a new entity with reduced debt, national digital scale to compete with the global technology giants and economies of scale in the business model," MacLeod said in the news 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 are yet to be confirmed, it's not clear that the deal would lead to better coverage, said Christopher Waddell, professor emeritus at Carleton University's School of Journalism and Communicationin Ottawa.

"It's not clear to me ... how this accomplishes what they're saying they're going to accomplish in being able to invest more money and produce a strong news media coverage for Canadians," he said.

Waddell said the pace of contraction among news organizations has been accelerating amid declining ad revenues and audience numbers, and that this deal looks to be the result.

"There's more than a little bit of desperation."

Postmedia has been struggling financially for years, saddled with extensive debt. It reported a net loss of $20.8 million in its latest quarterly results, while in its last full fiscal year, it paid $31 million in interest expenses while carrying about $275 million in debt.

The company announced significant layoffs in January this year, with about11 per cent of editorial staff to be affected. In recent years, Postmedia has closed a number of small-town newspapers, reduced print production of some of its titlesand moved some to digital-only formats to manage costs, among other layoffs and buyout offers.

Last week, Jamie Irving resigned as executive chair of the media conglomerate's board. He had held the role for less than seven months after assuming the role when longtime Postmedia chairman Paul Godfrey stepped down.

Postmedia said it confirmed the discussions in light of unusual trading activity, which saw its share price climb by more than 50 per cent on the day.