October 6, 2014 / 1:58 PM / in 3 years

UPDATE 3-Postmedia to buy Sun Media assets, create dominant Canadian newspaper chain

(Adds comments from competition law experts, background, union and political reaction)

By Euan Rocha

TORONTO, Oct 6 (Reuters) - Postmedia Network said on Monday it will buy Quebecor Inc’s Sun Media newspaper assets for C$316 million ($282 million) in a deal that would give a single publisher control of most of the major English-language dailies in Canada.

The agreement, likely to be closely scrutinized by antitrust authorities, would transform the country’s newspaper landscape, making Postmedia the owner of competing major local dailies in cities such as Ottawa, Edmonton and Calgary.

The deal would bring some 175 newspapers and publications, including the Sun’s flagship assets - the Ottawa , Toronto, Winnipeg, Edmonton and Calgary Sun newspapers - as well as the London (Ontario) Free Press into the Postmedia fold. Postmedia said the deal will position it to better compete with foreign-based digital offerings.

Postmedia, already home to the National Post, the Vancouver Sun, Calgary Herald, Montreal Gazette and other Canadian publications, would also gain control of the 24 Hours commuter dailies in Toronto and Vancouver, along with a host of other community dailies and weeklies.

Despite the huge ownership concentration resulting from the deal, analysts downplayed competition concerns, noting there is proof of increased competition in the business from online and free daily operators.

COMPETITION CONCERNS

In what may be a sign of the newspaper industry’s waning influence in the digital age, the deal generated little initial political reaction.

The Conservative government noted that Canada’s antitrust watchdog, the Competition Bureau, will study the agreement, but said it did not comment on private business decisions. Member of Parliament Peggy Nash of the opposition New Democrats said the deal “doesn’t bode well for diversity” and that her party was concerned about staffing, but she also noted there may be advantages in the two chains joining forces.

CWA Canada, a union representing media workers, dubbed the deal “hopeful, troubling and puzzling”. It noted that it would create a near monopoly in English-language newspapers in Canada, but it also said it is hopeful the combination would lead to Postmedia putting more money into the business.

The Competition Bureau downplayed its role so far as acting as a guardian of the diversity of voices in the media.

“While media ownership concentration can raise other public interest concerns, under the Competition Act, the bureau’s mandate is to review mergers exclusively to determine whether they are likely to result in a substantial lessening or prevention of competition,” the agency said.

Competition lawyers said the Competition Bureau is most likely to focus on the reduction in advertising options that could result from the deal.

“This will be a fascinating competition file and hard work for all the parties involved,” said one competition law expert, who declined to be identified to protect commercial interests. “Clearly the substantive issue will revolve around advertising.”

The transaction also includes the acquisition of associated English-language digital properties, including the Canoe portal outside Quebec, as well as a Quebecor printing press in Toronto, and some 34 real estate properties.

Postmedia said it plans to operate the major Sun dailies and their websites side by side with its existing publications in markets with multiple brands as it has in Vancouver for more than 30 years with the Province and the Vancouver Sun.

Postmedia competes against Torstar Corp, publisher of the Toronto Star. It also vies against the Globe and Mail, a national daily majority-owned by the Thomson family, which also controls Thomson Reuters Corp, which owns Reuters News.

TRANSFORMATIVE DEAL

Quebecor said it is selling the assets due to increasing competition from digital media and new technological platforms. It had bought the assets for nearly C$1 billion in 1998 after topping a hostile bid from rival Torstar.

“Newspaper revenues have been declining year by year,” Quebecor Chief Executive Pierre Dion said in a statement, adding that the deal comes at a time when the Canadian newspaper business needs consolidation to remain viable.

Desjardins analyst Maher Yaghi said the sale would transform Quebecor’s earnings profile with over 95 percent of its earnings to come from its Videotron cable and wireless unit, which operates mainly in Quebec, making it more of a pure-play company. Yaghi said that is positive for the company and should earn Quebecor a higher trading multiple.

He said he sees Quebecor using the proceeds to invest in a national wireless platform, or to possibly buy back, in part, Caisse de depot et placement du Quebec’s stake in its subsidiary Quebecor Media Inc.

Quebecor shares closed 1.6 percent lower at C$28.17 on the Toronto Stock Exchange. Postmedia’s stock was halted all day.

$1=$1.12 Canadian Editing by Jeffrey Hodgson; and Peter Galloway

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