Toronto private lender Canso funds Torstar takeover bid, after backstopping two of its print media rivals

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One Toronto-based fund manager has emerged as the lender of choice and potential kingmaker at Canadian print media companies, pledging $50-million for the planned takeover of Torstar Corp. after previously backstopping two of the publisher’s biggest rivals.

Canso Investment Counsel Ltd., which oversees $24-billion on behalf of clients, is lending the money that entrepreneurs Jordan Bitove and Paul Rivett need to buy struggling Torstar, owner of the Toronto Star and 70 other papers, and pay for a digital revamp of the company.

Canso is also the major lender to Toronto-based Postmedia Network Canada Corp., which owns the National Post and 140 other Canadian newspapers and digital platforms, and to Black Press Group Ltd. of Surrey, B.C., with a stable of 170 publications in British Columbia, Alberta and four U.S. states. Canso has stuck with Postmedia through several restructurings and is currently owed approximately $90-million.

Torstar’s potential buyers created a company called NordStar Capital to make the acquisition. In an e-mail on Thursday, NordStar said: “In securing financing for this transaction, we spoke with dozens of potential financing parties. From that group, four competitive options emerged. In the end, we went with the lender who we felt best understands and has the most experience in the Canadian media industry, Canso."

From the moment NordStar’s bid was announced, media industry executives have suggested it is the first step to a merger of Torstar and Postmedia. In its e-mail, NordStar took pains to address this notion.

"Although it is a private transaction, let us be absolutely clear: The financing arrangements for the NordStar bid are not, in any way whatsoever, connected directly or indirectly with any other media company,” NordStar said.

The price tag on Torstar is only $51-million – NordStar’s backers have the personal wealth to write that cheque – but the buyers said this week they expect to invest tens of millions of dollars in upgrading the company’s technology, which Mr. Bitove said lags rival media platforms. Sources working on the transaction said Canso agreed to provide $50-million of debt financing, which is expected to close this fall. These sources say Royal Bank of Canada, which advised NordStar on the bid, also offered to provide capital and might put up additional money. The Globe and Mail agreed not to name these individuals because they were not authorized to comment on the transaction.

Over the years, numerous industry executives and analysts predicted Canadian print media companies will keep consolidating, to cut costs and better compete with digital rivals such as Google and Facebook. There is a business case for combining Torstar with a rival such as Postmedia, which would include using technology more efficiently along with reducing expenses.

However, NordStar’s executives said this week they plan to run Torstar as an independent platform, with existing managers executing a digital transformation plan. The new owners plan to name former Ontario Liberal premier David Peterson as vice-chair of the Toronto Star, charged with preserving the platform’s socially progressive approach to journalism.

One source close to the deal said the Torstar board and the members of the five families who control Torstar’s voting trust were adamant that a takeover of the company would not be the start of a creeping takeover by Postmedia, which owns the Calgary Herald, Edmonton Journal, Ottawa Citizen, Montreal Gazette and the Sun chain, among others. Torstar’s current owners were assured this would not be the case, the source said.

If Torstar and any other company that borrows from Canso pays back their loans, the fund manager has no role in their governance and management. However, if a lender defaults on its debts, a creditor such as Canso can take control of the business.

Any union of Torstar and Postmedia would put control of newspapers and digital platforms in central and western Canada under one roof, and would likely face significant regulatory issues. The federal Competition Bureau is investigating the two companies over their swap of 41 community newspapers in 2017, and subsequent closing of 36 of the properties.

Canso founder and president John Carswell declined to comment this week on the Torstar transaction, citing a policy of never speaking about the fund manager’s investments. The former Canadian Air Force navigator is among corporate Canada’s largest fixed-income investors, and a banker working on the Torstar transaction said Canso would be the first stop for any media executive looking for capital.

NordStar will offer 63 cents per Torstar class A and class B share, a 58-per-cent premium from Tuesday’s closing price on the Toronto Stock Exchange. Ten years ago, Torstar stock was worth more than $10, while 15 years ago, it was a $2-billion company and leading media platform.

The deal has the blessing of Torstar’s board and a majority of the class A voting shares, which are held in the family trust. It comprises the Honderich, Hindmarsh, Campbell and Thall families, as well as the family of long-time publisher Joseph Atkinson, who died in 1948.

NordStar principals said that under the terms of the agreement, Torstar could accept a better offer if one came along. The planned takeover comes after a long and steady skid in Torstar’s share price amid the industry’s sharp fall in print advertising revenue, and some strategic missteps. Those included a failed attempt to create a digital tablet-based newspaper and a national expansion of the Star brand, from which the company has since retreated. It has sought to stem the red ink through asset sales, newspaper closings and staff cuts.

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