Merger talks between Postmedia and Toronto Star owner fall apart

Talks to combine two of the biggest newspaper publishers in Canada have fallen apart.

Postmedia Network Canada Corp. and Nordstar Capital LP — the majority owner of The Toronto Star and dozens of other smaller newspapers under the Metroland banner — announced late last month that they had entered non-binding discussions about possibly merging.

The framework of the proposed merger would have seen Postmedia transfer its dozens of newspaper titles over to Metroland, with voting control of the new entity split 50-50 between the two sides. 

But on Monday, the two sides announced that those talks have broken down, that they have been unable to come to an agreement, and that the "added backdrop of regulatory and financial uncertainty led them to make the decision to end their negotiations."

The economics of print journalism have been trending lower for years, but the pace of that decline has quickened in recent years, as an abrupt reallocation of advertising spending coupled with major drops in print subscriber numbers.

Digital platforms are growing quickly, but not profitably enough to fill in the gap. Both companies are saddled with debt that has become increasingly expensive to finance as interest rates have risen of late.

Postmedia shares are listed on the Toronto Stock Exchange, but they are very thinly traded because the company is controlled by the holders of its debt, most of whom are U.S. investment funds. New Jersey-based hedge fund Chatham Asset Management is the largest single holder of Postmedia's debt, according to regulatory filings, with more than $260 million of it.

The biggest chunk of Postmedia's debt is a $177 million bond offering, set to expire in 2027, with an interest rate of 10.25 per cent. There's also another $90 million worth of different bonds, at 8.25 per cent, also set to expire in 2027.

Nordstar, controlled by Toronto financier Jordan Bitove, got into the media game only in 2020 when it bought the assets of Torstar Corp. for $52 million. It has since branched into numerous new businesses, including parcel delivery and sports gambling, but it, too has a growing debt problem.

Nordstar has at least $55 million of unsecured debt on its books, with an interest rate of 10 per cent, according to data compiled by Bloomberg.

Continuing to pay down that debt in a time when revenues are declining was a major impetus for the deal in the first place. The "core rationale," for the proposed merger, the two companies said, "is to create a new entity with reduced debt."

In a statement, Bitove — who is also published of the Toronto Star — says the company is still committed to the news business.

"These are challenging times for media companies, but we intend to keep working hard to give Canadians the news they need to stay informed, which is essential to our communities and to the functioning of our democracy," Bitove said.

"Torstar remains focused on addressing the existential threats to journalism in Canada, which have been amplified in recent weeks with the announcements by Meta and Google that they intend to block access to Canadian news," he added.