The 20th century could well be called The Newspaper Century. Through
100 years, beginning in the 1890s, news printed on paper dominated the
political and media landscape, overcoming even the advent of television.
As circulation and advertising soared and declined and rose again
through boom times, wars, economic recessions and technological change,
the newspaper business remained a harshly competitive but mostly
profitable business. Owners of varying business talents and conflicting
political interests fought day in and day out — for readers, news,
advertising and political influence.
By today’s standards, most of the competitive newspaper anecdotes
seem mildly dramatic and quaintly colourful. In Canada, certainly,
newspaper owners were far less offensive and politically aggressive than
their counterparts in the United States, where media legends such as
William Randolph Hearst and Joseph Pulitzer engaged in racist “yellow
journalism” and routinely printed steady steams of sensationalism and
wild fabrications.
The greatest Canadian circulation war occurred in the 1950s and 1960s
in Toronto, between the Toronto Star and the Toronto Telegram. While
The Globe and Mail played third fiddle, the Star and Telegram skirmished
through many decades, from deadline to deadline and story to story.
It was a Political war with a capital P between the relentlessly
Liberal/left/socialist Star and the steadfastly Conservative, Royalist
and right-wing Telegram. Owners called one another names, but it was all
part of the sport. The proprietor of the Telegram in the early 1950s, a
wealthy deal-maker named George McCullagh, told his employees his
objective was to go after the Star and “knock that shitrag right off its
pedestal.”
In his lively book on the mid-century Star/Telegram era, Hello
Sweetheart… Get Me Rewrite: Remembering the Great Newspaper Wars,
veteran newspaper writer Val Sears, who died in January at 88, reports
on McCullagh’s roughhouse observation on the physical appearance of the
Star’s then-president, H.C. Hindmarsh. In an interview with Time
magazine, McCullagh said, “That fellow Hindmarsh is so ugly that if he
ever bit himself he’d get hydrophobia.”
Absurd and crude, maybe, but mild compared with the latest ugly
language in the current newspaper war between the Toronto Star and
Postmedia Network, which owns a chain of newspapers across Canada,
including the National Post. In what appears to be a concerted effort to
malign and destroy the reputation of its competitor, the Toronto Star
and John Honderich, chairman of its corporate owner, Torstar, recently
launched a series of personal and corporate attacks on Postmedia’s
executives and corporate behaviour.
There’s no love lost between Torstar and Postmedia, or between John Honderich and Paul Godfrey
There’s no love lost between Torstar and Postmedia, or between
Honderich and Paul Godfrey, chief executive officer of Postmedia.
They’ve been competitively sparring for many years, politically and in
business. But the nature and tone of the recent series of Star attacks
on Godfrey and Postmedia are beyond anything seen in 100 years of
riotous newspaper competition.
The language has shocked observers. Bill Ardell, former head of
Southam Newspapers — once in partnership with Torstar — said that “a bit
of a gentleman’s code has been broken by this kind of a rant.” Nobody
wants to see the end of newspapers, but “that clearly was sort of a
diatribe that was unnecessary.”
The Star’s unprecedented public attacks on Postmedia began on Nov. 9,
2015, with a column by John Honderich, who inherited part of the voting
control block of Torstar through his father, legendary Star editor and
publisher Beland Honderich. In all, seven family groups representing
dozens of individuals control Torstar through a voting trust. In his
column, Honderich mostly took aim at Postmedia’s decision to order each
newspaper in the chain to endorse the Conservatives in last year’s
federal election.
Whatever the merits of the Postmedia election editorial policy — and
there’s room for criticism on various grounds — Honderich used the
policy as a pretext to attack Godfrey and portray Postmedia’s editorial
decisions as an affront to the highest principles of freedom of the
press. Godfrey, he wrote, was having a “negative impact” on the
newspaper industry as a whole. In a cheap-shot aside, Honderich
mentioned that Godfrey was about to be installed in the Canadian News
Hall of Fame, implying that the award was somehow scandalous and
undeserved.
It was an odd column. Where did that come from? There was clearly
more going on here than mere journalistic pique over press freedom and
the role of newspapers. In retrospect, the piece needs to be put into a
larger corporate perspective. It is worth noting, for example, that
Honderich’s Nov. 9 high-profile attack on Postmedia came four days after
Torstar, the company he chairs and controls through the voting trust,
cut the dividend on its stock by 50 per cent and endured a 25 per cent
stock price decline to $3.10. The third-quarter earnings report noted a
loss-to-date in 2015 of $166 million.
In the weeks that followed, Torstar shares would continue to slide as
investors and analysts puzzled over the company’s strategy in the face
of what was turning out to be another grim year for the industry, and
especially the Star. As Torstar’s market fortunes worsened, Honderich
ratcheted up his attack on Postmedia.
On Nov. 28, less than three weeks after the initial Honderich column,
the Star published another blast, a 5,000-word take down — massive by
newspaper standards — of Postmedia. The headline doubled-down on
Honderich’s cheap shot: “The man who brought Canadian newspapers to
their knees … is now a member of the Canadian News Hall of Fame.” A
four-column picture of Paul Godfrey appeared under the headline.
Written by Bruce Livesey, the article was not original to the Star,
having been published four days earlier in the left-wing Vancouver
online magazine, The National Observer. Livesey, a staff writer at the
Observer, is a master of the inappropriate juxtaposition of fact and
conclusion. His piece on Postmedia is a genre award winner.
As the New Year came, the Torstar shareholder bonfire continued, with
the company’s stock price tumbling again to hit an all-time low $2.11
on Jan. 24. Three days later, Honderich wrote another column in which he
said Godfrey was “trifling with the truth about the newspaper
industry.” The issue, said Honderich, was a Godfrey statement about the
role of the U.S. hedge fund GoldenTree in the operation of Postmedia. If
GoldenTree had not invested in the CanWest newspapers and created the
Postmedia chain, Godfrey said in a media interview, “this chain might
not be in existence today.”
Honderich, among other things, said that was false. “Get your facts
straight, Paul,” he said. “How about Torstar, of which I am chair … We
submitted a bid of approximately $800 million.”
Added Honderich: “And we are Canadian.”
According to Godfrey, however, it is Honderich who seems to have
forgotten. In a note to Postmedia employees responding to Honderich,
Godfrey said Torstar’s lowball bid for CanWest was well below the “floor
price” of $925 million that had been set by CanWest creditors, a group
led by the Bank of Nova Scotia. Torstar, in other words, was never in
the running.
This Honderich/Godfrey tiff was trivial compared to the next Torstar
move. On Jan. 30, another Star blast at Postmedia landed, this time from
business columnist David Olive. Atop the front page of the Saturday
Star, a white-on-red promotion said: “There is a cancer on Canadian
journalism. The malignancy is Postmedia, a foreign-controlled,
debt-burdened contrivance flirting with insolvency that nonetheless is
relied on buy about 21 million Canadian readers. It’s a shocking story.”
The front-page sell sent readers to the Olive column, which was
splashed dramatically across the front of the Star’s business section.
In his column, Olive added the following salvo: “The good news is that
the Postmedia abomination, which has never turned a profit, is in such
wretched condition that it’s not long for this world.”
The Olive piece appeared to be channelling Honderich’s brain waves.
He regurgitated an assortment of his chairman’s opinions on the nature
of a free press (“an essential public service”) and foreign ownership.
He called Godfrey’s claims to have rescued the CanWest newspaper chain
“a lie.” He claimed Postmedia was paying hundreds of millions to
“quick-buck” U.S. hedge funds that were poised to raid it and make off
with all the assets. Financially, wrote Olive, Postmedia “has erased
about $530-million in shareholder value, a record in the 264-year
history of Canadian newspapers.”
That, as Olive might say, is a lie. It is certainly not true. There
was no mention in Olive’s story of the steady decline in Torstar’s
revenues — or its collapsing shareholder value. Since 2004, Torstar’s
shareholder value has dropped from a peak of $30.60 a share, or $1.9
billion, to $2 today, about $175 million. In other words, Torstar has
erased $1.7 billion in shareholder value since 2004, making Torstar —
and not Postmedia — guilty of the largest destruction of value in the
264-year history of Canadian newspapers. The Torstar value decline is
three times greater than that of Postmedia.
From Honderich’s perspective, Torstar’s lost value is even more
dramatic and personal, considering that his family’s voting control over
the company is exercised through a voting trust that holds 9.8 million
shares, or about 12.5 per cent of outstanding Torstar shares. At $30 a
share, the descendant families of the voting trust clans held Torstar
shares worth $240 million. Today, those same shares are worth $20
million.
The damage to the voting trust members is even greater. According to
the last information circular, Honderich and the other members of the
trust collectively also own 20 per cent of Torstar non-voting shares. In
all, Torstar’s seven controlling families now hold $50 million in
Torstar equity that was once worth $600 million, all of it wiped out
under John Honderich’s watch.
The voting trust structure, which gives the families control of the
company with a minority position, is a problem in itself, At least one
bank analyst says this control is an issue with investors. “Torstar has
always had a unique ownership structure. So in terms of investors
stepping in and really wanting to create some new change within the
organization and take new tacks or whatever … obviously that’s not
really an option. So it’s kind of getting left behind right now.”
With the company he chairs skidding through a cash-flow squeeze and a
corporate value decline that must be devastating personally, the public
attacks on Postmedia have industry observers scratching their heads.
What’s Honderich’s real motivation?
One logical theory is that Postmedia, deep in debt and suffering
through the industry crisis, is vulnerable on several fronts and
Honderich is doing everything he can to enhance that vulnerability for
the long-term benefit of Torstar. Less obvious, perhaps, is the
vulnerability of the venerable Torstar itself as owner of Canada’s
largest circulation newspaper. Unlike Postmedia, Torstar may be
debt-free, but it is also teetering on the brink of its own corporate
meltdown. Its problem: No cash in its dowry, declining revenues and no
obvious marriage prospects.
One veteran newspaper executive not affiliated with either company
said in an interview that if Honderich’s plan is to pick up Postmedia
assets, “I think they’d have a hard time doing that. I think they’d have
a hard time finding the money to do it.”
Torstar shares continue to hover around $2 a share, and have even
slipped below that on occasion, as analysts and investors try to assess
the future of a company that has operating losses, little cash and has
hooked its future to a couple of high-risk Internet ventures.
What this war is about may be reduced to a simple question: Which of
the major newspaper companies will hit the wall first, and which is most
likely to survive? This could be the last battle for the Star, a
company that, in one form or another, has never been able to lift itself
out of its Toronto home.
For more than half a century, Torstar has been locked in direct
competitive struggle with one or another of Postmedia’s predecessors.
Postmedia may be a new business entity, but it incorporates newspaper
properties that the Star has failed to overcome as competitors despite
many attempts.
- Torstar failed to eliminate its direct competition as hoped when it bought the old Telegram’s circulation list in 1971.
- Torstar
failed to stop the Toronto Sun, which rose out of the ashes of the
Telegram on the day the Telegram stopped publishing and soared to become
a major thorn in Torstar’s side.
- Torstar failed to consummate a
takeover/merger with the Southam newspaper chain (of which it owned 20
per cent) in 1992 when Honderich and his team were squeezed out by
Conrad Black.
- Torstar failed to conclude a hostile takeover of
Sun Media in 1998. Instead, the Sun went to Quebecor in a deal that was
at least partially orchestrated by Paul Godfrey, who was then CEO of Sun
Media.
- In 2011 Torstar failed to buy the newspaper assets of
CanWest, the Asper media conglomerate that had bought the Southam
newspaper chain, plus the National Post, from Black in 2004.
So
many battles and so little to show for them. Honderich and Torstar have
been on a consolidation hunt for decades. The publisher of Canada’s
largest circulation newspaper claims to be philosophically opposed to
corporate media chains and concentration of ownership — unless Torstar
is the concentrated owner. It just never succeeded and now has nowhere
to go.
***
As with all newspaper companies, Torstar is struggling with new
market realities and has run out of options. Its current corporate
strategies have analysts puzzled and investors bailing out.
At the end of 2013, Torstar had its feet firmly planted in two
sliding industries, newspapers/media and book publishing. Revenues from
the newspaper/media operations — the daily Toronto Star, the free Metro
tabloids, and a chain of community papers — had dropped below $1 billion
and would fall another $100 million in 2014. Analysts expect another 10
per cent slide when Torstar announces its 2015 results on March 2.
Torstar’s book publishing arm, Harlequin, faced the same fate as the
newspaper business. Always an odd fit within Torstar except for its
ability to generate fat profits, Harlequin was — as Honderich put it —
“undergoing transformational change with digital books.” Perhaps wisely,
Torstar sold Harlequin in May 2014 for $455 million. Unfortunately, it
was a little late. A decade ago Harlequin, then rolling in profits,
might have been worth maybe three times $455 million. Still, analysts
welcomed the sale in part because it allowed Torstar to pay off all its
debt and end up with a $290-million cash position.
The sale of Harlequin boosted Torstar’s already flagging share value
by 20 per cent within a week to $8.15. But that’s the last time Torstar
saw $8. Soon, as investors began to absorb the company’s plans for the
$290 million in cash, Torstar began a major tumble. The decline
accelerated when Torstar paid out most of the cash — $200 million — for a
56 per cent share of a digital media company called VerticalScope.
VerticalScope’s business model is based on attracting advertisers to
websites it manages. Torstar describes VerticalScope as a “vertically
focused digital media company which services the North American market
through its network of user forums and premium content sights.” The
business is heavily focused on attracting buyers of cars and other
high-profile products, such as snowmobiles.
Whatever VerticalScope’s business model, its financial details are
not public. Sketchy data in Torstar’s last financial report imply an
operating losses of $18 million. Torstar concedes that VerticalScope is a
year or more from generating meaningful returns.
One analyst has doubts about the merit of owning only 56 per cent of a
company. Bentley Cross of ScotiaCapital told Torstar executives, “It
doesn’t make a heck of lot of sense to have a public company (Torstar)
with a 56 per cent holding in something else.” In such cases, investors
tend to apply a “holding company discount.”
With Harlequin gone, Torstar is grappling with a declining newspaper
industry, a tablet that has debatable prospects and a digital product
that is a long-term risk
When Torstar issues its next financial report on March 2, analysts
will be looking for real disclosure on what it bought with $200 million.
Said one, “They go and spend a bunch of money and it would be nice to
get a little more operating history to know that either a) it was a
great purchase or b) a big waste of money. “
Analysts participating in an investor conference call last November
with Torstar listened attentively as executives reviewed another looming
exodus of cash. After sinking more than $13 million during 2015 into
developing and marketing Star Touch, a tablet version of the newspaper,
the company has said it will spend up to another $9 million in 2016
marketing the product. By the end of 2016, the objective is to have
180,000 “daily readers” for Star Touch.
Exactly what constitutes a daily reader and whether Torstar will be
making any money off the product at that level remains unknown. A
Torstar executive said it was too early to say when Star Touch might
start producing cash since the company was at the “very early stages of
dealing with advertisers.” For what it’s worth, Godfrey says Postmedia’s
experience with tablet newspapers suggests advertisers are not
interested in such products. The ad dollars are in phones, not tablets.
With Harlequin gone, Torstar is grappling with a declining newspaper
industry, a tablet that has debatable prospects and a digital product
that is a long-term risk. All require a lot of cash. At the same time,
there’s the dividend to be paid. Torstar CEO David Holland, on the
November conference call, was not encouraging. The dividend, which will
fall to 26 cents a share on March 2, could be cut again at the end of
2016 if circumstances warrant.
The dividend cut is no picnic for Honderich and the voting trust
families. Their collective dividend on their declining stock value will
fall from $12 million to $6 million, spread among dozens of heirs.
***
While it might be in Torstar’s business interest to see Postmedia
lurch into another corporate reorganization, the Star’s published
attacks are all delivered as matters of high moral and political
principle. No corporate power interests are mentioned. Everything
Postmedia does is framed as a breach of journalist ethics and a threat
to the public and the national interest.
Honderich claims newspaper ownership is “a privilege, not a right,”
that corporate owners abuse by dictating newspaper policies. Olive rants
about foreign ownership, layoffs, losses, hedge-fund vultures and the
“countless news stories that are no longer reported.” No mention of the
Star’s layoffs or the closing of Torstar-owned newspapers. Livesey
managed to twist routine newspaper procedures into evil manifestations
of concentrated corporate control, all while skewering Godfrey.
In each of the above reports published in the Star, the main themes
are almost entirely ideological and political. Postmedia is portrayed as
a den of compromise and dastardly foreign-owned corporate behaviour
that threaten their definition of the public interest.
As a matter of fact, little of their parade of allegations is true,
including the now-entrenched idea that evil New York hedge funds led by a
company called Golden Tree are profiting handsomely by bleeding
Postmedia dry. But more on that later.
The origin of the Livesey piece is worth an aside. It was written for
an online newspaper, The National Observer, a radical left/green
operation founded by Linda Solomon Wood, CEO of Observer Media Group
based in Vancouver. Solomon Wood is the sister of Joel Solomon, founding
vice-chairman of Tides Canada, the Canadian charitable arm of a U.S.
foundation, with tentacles throughout the green political movement.
Tides Canada, an active funder of various environmental and activist
groups, also funds journalism in the Observer — and in the Star. At the
Observer, Tides is backing an environmental series on the Great Bear
Rainforest movement in British Columbia. It also partnered with the Star
last year to fund a series of reports on the Paris climate talks.
Livesey, a staffer at the Observer, begins his 5,000-word article
with a four-year-old tale in which Dan Murphy, a cartoonist at the
Postmedia-owned Province in Vancouver, published an animated cartoon
that doctored a Northern Gateway pipeline commercial. Murphy altered the
images in the feel-good television ad by drawing in splotches of black
oil and fart sounds to depict a series of spills from the pipeline. The
screen is splattered with black smudges. The editor of the Province,
Wayne Moriarity, pulled the cartoon from the paper’s website.
Is this a breach of journalistic principles? Not by any stretch. Over
the Newspaper Century, it is safe to say that hundreds of cartoons have
been killed by editors and/or publishers who did not like the work of
their cartoonists. Has the Star never killed a cartoon by one of its
long list of artistic troublemakers over the last 100 years? No
newspaper, moreover, would allow its cartoonist to doctor and ridicule
an advertiser’s ads to score a cheap joke and independently publish it
without first seeking permission. Whether Moriarity made the right
decision — and he says it was his alone — is not material.
Livesey also veered into a brief review of two libel cases, one
involving the writer of this article. There was nothing new in his
summary, except that it allowed him to say such libel suits represented
“reputational hits” to Postmedia. Would the Star agree that a libel suit
— of which the Star has had many — is a reputation hit on the Star?
What damage to its reputation does a media corporation suffer when it
elects to defend its journalists (including one who no longer works at
Postmedia) in court against libel allegations? On the contrary, it is an
indicator of journalistic integrity for a newspaper to back its
writers.
Later in his piece, Livesey trods through more journalistic trivia
around one of his major themes: “One victim of the fall of Postmedia has
been its journalism.”
In the news and comment business, one journalist’s incisive review
or comment is another journalist’s wrong-headed ideological blither.
Livesey sees everything other than his own view as a journalistic
failure.
As a convert to climate catastrophism, Livesey feels other views
should not be heard. Postmedia, he says (inaccurately), employs a roster
of columnists who for years have argued “that climate change is a myth
and the oilsands must be developed.” The offending columnists are
listed: “Terence Corcoran, Peter Foster, Rex Murphy and Lawrence Solomon
at the National Post; columnists Barry Cooper and Licia Corbella (who
is also editorial page editor) at the Calgary Herald and Province
columnist Jon Ferry.”
For an authority on whether this is bad journalism and dumb corporate
strategy, Livesey consults a fellow traveller, David Miller, a former
greener-than-green mayor of Toronto and head of the apocalyptic World
Wildlife Fund. Predictably, Miller declares my existence and that of
other columnists at Postmedia to be “a poor strategic move” in a country
where the “vast majority … are environmentalists.”
More could be said about Livesey’s judgment and journalism. But he
trips up most egregiously in his portrayal of Postmedia as a hapless
appendage of New York hedge funds.
The company, he writes, is “controlled primarily by two American
hedge funds: Golden Tree Asset Management LP and Silver Point Capital
LP.” Such funds, he said, have a “reputation for being destructive and
remorseless sharks within the financial industry.”
According to Livesey, while Postmedia is losing money the U.S. hedge
funds have been funnelling massive streams of cash out of the company.
Since the creation of Postmedia in 2011, he said, they have collected
$340 million in interest payments to cover interest costs of 8.25 and
12.5 per cent on Postmedia debt.
As a result of these payments, Livesey said, Postmedia has been “a
profitable investment” for Golden Tree and the hedge funds. Olive
agreed, saying U.S. hedge are “doing just fine.”
Olive went a step further, claiming that under hedge fund control
Postmedia may be on a “deliberate path of self destruction.” By draining
the company dry, the U.S. hedge funds can “get their hands on a
bankrupt Postmedia’s real estate and other assets at fire-sale prices.”
None of this is true, at least not by my reading of Postmedia’s
financial condition. The Livesey and Olive attempts to portray Postmedia
as a hapless appendage of New York hedge funds are technically wrong
and fundamentally inaccurate.
First of all, Olive appears to have just made up his real estate
sell-off story. Why would the hedge funds deliberately aim to sell
assets at fire-sale prices? In any case, as Postmedia has reported in
its financial statements, there are no significant real estate assets to
sell. Over the years, real estate holdings — such as Postmedia’s former
Toronto head office, newspaper production buildings in Vancouver,
Edmonton, and Montreal and newspaper operations and real estate in
Victoria and the lower mainland region of British Columbia — have all
sold for a total of about $150 million in what appear to be prime market
conditions, rather than at fire sales prices.
Livesey makes the same nonsensical claim that U.S. hedge funds are
getting rich squeezing Postmedia dry, sucking out interest payments and
“selling off assets for scrap to recoup their investment.” As with
Olive, he does not explain how companies get rich selling assets for
scrap.
The general conclusion in the Livesey/Olive review of Postmedia is
that the U.S. “hedges will be at or near the front of the line of
creditors in a bankruptcy proceeding.”
That’s not true either.
The Canadian newspaper industry is in dire straits. The last thing it needs is a mudslinging internecine public battle
Let’s take a look at just a bit of the financial history of Postmedia
since its creation in 2011. By my assessment using annual statements
and other sources, the U.S. hedge funds, including Golden Tree Asset
Management, have over time put three different tranches of cash into
Postmedia. First, there’s an initial 2010 investment of C$250-million in
original Postmedia equity. A second equity infusion of C$175-million
occurred in 2015 to help pay for the acquisition of Sun Media. The third
U.S. hedge fund cash injection was an original 2010 debt issue worth
US$275-million.
The changing value of the Canadian dollar makes these numbers hard to
reconcile. But a rough addition of the three injections at current
exchange values comes to either US$600-million or C$700-million. Either
way, it’s a lot of cash. But what have the hedge funds received in
return? According to Livesey, “For the hedge funds that control it …
Postmedia is a profitable investment.”
In fact, with Postmedia shares now worth close to zero on the market,
the value of the U.S. hedge funds two equity investments (C$250
million/US$190 million) and C$175-million/US$135-million) is currently
zero. As for the debt issue of US$275 million bought by the hedge funds,
including Golden Tree, the last quoted price on bonds is about 65 cents
on the dollar.
In summary, Golden Tree and the U.S. hedge funds have invested the
equivalent of US$600 million in Postmedia that right now is valued at
US$175 million.
Meantime, of course, the hedge funds have collected interest payments
at a rate of 12.5 per cent a year, or a 5½-year total of about US$190
million, on the debt portion of the original investments. In short, the
U.S. hedge funds have at the moment a collective equity/debt net cash
deficit of as much as US$300 million.
The story of Golden Tree’s plunder of Postmedia is a myth, a fabrication of Olive and Livesey.
Another myth is their claim that Golden Tree and all the other U.S.
hedge funds will end up as foreign owners of Canada’s key newspaper
properties if Postmedia should be forced into a financial restructuring.
In fact, however, Golden Tree — which may well now be a minority
holder of the original US$275-million high-rate bonds — and U.S.
investors are unlikely to end up controlling the company. They don’t
control it now, nor would they in 2018.
Olive and Livesey fail to note that Postmedia has Canadian investors
that are first in line to take control of Postmedia. In the event of a
restructuring, the ultimate controller of the Postmedia newspaper chain
would not be American hedge funds, but a Canadian entity known as Canso
Investment Council, a private investment fund manager based in the
Toronto suburb of Richmond Hill.
Canso’s founder and CEO is John Carswell, a one-time air force
navigator, graduate of the Royal Military College of Canada and holder
of an MBA from Queen’s University whose company now manages $18 billion
in assets through scores of funds and investment vehicles. He appears in
brief biographical notes to be a patriotic Canadian who sits on the
board of the Vimy Foundation. Canso, formed in 1997, is the name of an
aircraft built by Canadian Vickers in Canada during the Second World War
and reportedly flown by Carswell’s father.
What Carswell thinks of Postmedia strategy and policies is unknown.
He did not return a phone call. But Canso is clearly in the driver’s
seat.
In August of 2012, Postmedia issued $250-million in new C$ debt, with
Canso one of the buyers. The cash was used to pay down part of the
original debt needed to fund the $1-billion CanWest takeover. Postmedia
disclosed in a press release announcing the Sun acquisition that a
holder owned more than 50 per cent of this issue. This holder is
subsequently disclosed as Canso.
In 2014, when Postmedia amalgamated with Sun Media, Canso provided
another $140-million in debt financing. Combined, the two C$ debt
tranches add up to $355 million. Exactly how much Canso owns of the
total C$ debt isn’t known, but it is likely to be more than 60 per cent.
In its latest financial report, Postmedia lists debt of C$672
million, half held by U.S. hedge funds (now valued at C$350 million) and
half by Canadian/Canso investors. But here’s the thing: The
Canadian/Canso debt is made up of first-lien notes which “are secured on
a first priority basis by substantially all of the assets of Postmedia
Network and the assets of the Company.”
Leaving currency issues aside, the Canadian connection means that
about $80 million of the $340 million in interest payments Postmedia
allegedly shipped to U.S. hedge funds has actually been paid to
investors in the funds Canso manages and others.
The important nationalist conclusion, if one were to worry about such
things, is that in the event of a reorganization on or before 2017,
Canadians are first in line for the assets, not the U.S. hedge funds.
The second-lien notes owned by the U.S. funds are, as one might expect,
secured on a “second priority basis” in the event of trouble. If worst
came to worst, they would theoretically out in the cold.
Contrary to the claims of Honderich, Livesey and Olive, U.S. hedge
funds and foreign owners have not reaped fat profits from Postmedia, nor
is Postmedia at risk of collapsing into the hands of exotic Wall Street
outfits named Golden Tree.
The Canadian newspaper industry is in dire straits. The last thing it
needs is a mudslinging internecine public battle that is filled with
attacks that are inaccurate and politically motivated. As the graphic on
this page shows, the industry began to walk off an advertising revenue
cliff at the end of 2012. Over the next three years, revenue plunged
from $3.5 billion to about $2.2 billion in 2015, a decline of 50 per
cent over two years.
On March 2, Torstar executives will face analysts to review the
company’s 2015 performance and answer questions about the company’s cash
problems, sliding revenues, long-range strategy and $2 share price.
This is the Canadian newspaper industry in the 21st century. Maybe
with that conference call Torstar will do more to resolve its own
existential crisis and vow to stop inaccurately demeaning its
competition. It, too, may not survive.
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