Postmedia, Toronto Star owner Nordstar end their merger discussions

Postmedia Network Canada Corp. and Nordstar Capital LP, the company that owns the Toronto Star, say they have terminated discussions about a potential merger. THE CANADIAN PRESS/Andrew Lahodynskyj

TORONTO -

Canadian media companies Postmedia Network Canada Corp. and Nordstar Capital LP, the company that owns the Toronto Star, have ended discussions about a potential merger, saying they were unable to come to an agreement.

Both companies issued press releases disclosing the change, with Torstar Corp. noting that the added backdrop of regulatory and financial uncertainty contributed to the talks ending.

"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," said Nordstar owner and Toronto Star publisher Jordan Bitove in a press release.

Postmedia president and CEO Andrew MacLeod said in a statement that the "need for creative solutions and foundational transformation in our industry remains."

The two companies announced in late June that they were in talks to merge in a deal that would have seen Postmedia and Metroland Media Group combine forces, while the Toronto Star would be managed by a new company.

They had said the proposed deal would help them scale up in order to respond to the "existential threat" facing the media industry.

But experts sounded the alarm over what such a deal could do for local news coverage and for competition in journalism. Many compared it to a deal in 2017 that saw Torstar and Postmedia swap 41 community and daily newspapers, 36 of which were subsequently closed.

The Competition Bureau launched a probe into that deal but eventually made no move to stop it.

Postmedia laid off 11 per cent of its editorial staff earlier this year in the latest sign of struggle for the national company, which owns publications across the country including the National Post, Vancouver Sun and Calgary Herald.

The now-dead deal would have seen Nordstar retain a 65 per cent interest in the new company that would have been created to run the Toronto Star.

Meanwhile, Postmedia shareholders would have held a 56 per cent economic interest in the merged company, with Nordstar holding the rest, while voting shares would have been evenly split.

The deal would have also seen Postmedia convert some of its outstanding debt to equity. The company in its last full fiscal year paid $31 million in interest expenses while carrying about $275 million in debt.

Postmedia and Nordstar talks came amid a wave of layoffs at media companies, including Postmedia, Bell and the Athletic and Vice.

Each have seen their revenues strained in recent years as newspaper and cable subscribers have dropped and digital giants have swooped in, swallowing up advertising dollars.

The Canadian Media Concentration Research Project found Google and Facebook collectively accounted for 79 per cent of an estimated $12.3 billion in online advertising revenue in 2021 and over half of total advertising spending across all media.

Adding Amazon into the equation means the three U.S. digital conglomerates accounted for close to 90 per cent of the online advertising market, the project also found.

The dominance of the three players means little advertising revenue is left for Canadian publishers. News Media Canada calculated advertising revenue for community newspapers in the country dropped to $411 million in 2020 from $1.21 billion in 2011. Over that span, almost 300 papers either disappeared or merged with other publications.

To combat such ramifications, the federal government recently passed the Online News Act, which will force digital giants to pay media outlets for content they share or repurpose on their platforms when it comes into effect later this year.

Postmedia and Torstar executives have long supported publishers receiving reparations from digital giants.

Alphabet-owned Google and Meta, the owner of Facebook and Instagram, responded to the legislation by announcing they will block content from Canadian news publishers from their services before the law comes into force.

Google has said it will drop its News Showcase, a product it uses to licence news from over 150 local publishers including Postmedia and Torstar, in Canada.

Last week, the federal government, province of Quebec and city of Montreal said they were pausing advertising on Meta platforms in response to the company's plans to remove news content.

Heritage Minister Pablo Rodriguez said the government is in talks with Google and believes its concerns will be managed by the coming regulations as the bill is implemented, but he suggested the conversation with Meta was different.

A spokesperson for Meta has said the regulatory process won't address its concerns, with the bill set to come into force in under six months.

Last week, Torstar and Postmedia, as well as media companies Cogeco Inc. and TVA and Videotron owner Quebecor Inc. said they were suspending advertising on Meta's platforms.

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This report by The Canadian Press was first published July 10, 2023.

Torstar holds an investment in The Canadian Press as part of a joint agreement with subsidiaries of The Globe and Mail and Montreal’s La Presse.