October the 6th, 2014
Postmedia to Acquire Sun Media’s English Language Newspapers and Digital Properties
October 6, 2014 (TORONTO) – Postmedia Network Canada Corp. (“Postmedia” or the “Company”) today announced it has entered into a definitive agreement with Quebecor Media Inc. (“QMI”) to purchase Sun Media Corporation’s stable of 175 English language newspapers, specialty publications and digital properties (“Sun Media”), including the Sun chain of dailies, consisting of The Toronto Sun, The Ottawa Sun, The Winnipeg Sun, The Calgary Sun and The Edmonton Sun, as well as The London Free Press and the free 24 Hours dailies in Toronto and Vancouver. The purchase price is $316 million in cash less a $10 million adjustment related primarily to real estate properties to be disposed of by Sun Media prior to closing, and other customary price adjustments to be determined subsequent to closing. The transaction also includes the acquisition of associated English language digital properties, including the Canoe portal outside of Quebec, as well as QMI’s Islington printing plant in Ontario, and 34 owned real estate properties in Ontario, Alberta and Manitoba.
“This investment by Postmedia is a strong endorsement of the future of the Canadian newspaper industry and made-in-Canada journalism,” said Rod Phillips, Chair of the Board. “We are excited to be the custodians of many of Canada’s best known and trusted media brands, now and in the future.”
In calendar year 2013, the Sun Media properties generated Adjusted EBITDA1 of approximately $90 million on Adjusted Revenue1 of $508 million. For the last 12 months ending June 30, 2014 the Sun Media properties generated Adjusted Revenue1 and Adjusted EBITDA1 of approximately $487 million and $87 million, respectively. In addition, the Company anticipates annualized cost synergies in the range of $6 to $10 million. The additional free cash flow will improve the financial strength of the Company and allow it to accelerate its deleveraging efforts.
“This acquisition brings together an impressive stable of brands that collectively create a stronger Canadian media platform that is better positioned to compete against foreign-based digital offerings and offers a greater range of choices to our readers,” said Paul Godfrey, President and Chief Executive Officer of Postmedia. “We intend to continue to operate the Sun Media major market dailies and their digital properties side by side with our existing properties in markets with multiple brands as we have in Vancouver with the Province and the Vancouver Sun for more than 30 years. Our advertisers will have the opportunity to reach audiences across the country with a made-in-Canada option for their marketing programs.”
The acquisition of the Sun Media properties is expected to:
Significantly Enhance Cash Flow Profile and Pro Forma Leverage
- Adjusted EBITDA1 on a pro forma combined2 basis of approximately $204 million (excluding synergies) will improve Postmedia’s financial strength and free cash flow
- Reduces net debt/Adjusted EBITDA1at May 31, 2014 from 3.8x to a pro forma combined2ratio of 2.9x
Generate Synergy Potential
- Anticipated cost synergies in the range of $6 to $10 million per annum within two years
- Extended digital reach in order to compete more effectively with larger competitors
Increase Owned Real Estate
- Transaction includes real estate portfolio with more than one million square feet of space and estimated value in the range of $50 to $60 million
- Potential sales of Sun Media properties subsequent to closing provides additional opportunities to accelerate debt reduction
The agreement has been approved by both companies’ Boards of Directors and is subject to customary regulatory approvals, including from the Competition Bureau. During the regulatory review period, QMI will continue to operate the Sun Media properties.
Postmedia will finance the acquisition through a combination of debt and equity.
The debt financing will be provided through the issuance of an additional $140 million of its currently outstanding 8.25% Senior Secured Notes due 2017 (the “Notes”). An existing Noteholder, who owns more than 50% of the currently outstanding Notes, has entered into a subscription agreement pursuant to which it has agreed to purchase subscription receipts representing the entire amount of the additional Notes. The subscription receipts will bear interest at the same rate as the Notes and will automatically be exchanged for the additional Notes on completion of the acquisition, for no additional consideration. Closing of the subscription receipt offering is expected to occur in late October, following the completion of a formal consent solicitation to approve, amongst other things, amendments to the existing Note indenture required to facilitate the incremental funding of the additional Notes. The amendments must be approved by the holders of a majority of the outstanding Notes, but with the subscriber for the new Notes holding a majority of the Notes and agreeing to approve the amendments, this approval is assured.
Postmedia intends to raise the balance of the funds required for the acquisition by way of a rights offering of subscription receipts (the “Rights Offering”) for gross proceeds of $186 million less net proceeds from real estate sales of up to $50 million, to the extent available, prior to the launch of the Rights Offering. Postmedia has entered into a standby purchase agreement with its largest shareholder, GoldenTree Asset Management LP (“GoldenTree”)pursuant to which GoldenTree has agreed to take up any subscription receipts not otherwise subscribed for under the Rights Offering. In connection with its backstop of the rights offering, GoldenTree will enter into a voting restriction agreement with Postmedia that will limit the number of votes that GoldenTree will be entitled to cast at any meeting of Postmedia’s shareholders to 33 1/3%, less one share, of the total number of outstanding voting rights in respect of all of the issued and outstanding shares at such time, regardless of how many shares GoldenTree owns at such time.
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This is absolutely bizarre! For some time we’ve been hearing Post Media is on its last legs, now out of the blue they can gather together all these monies to take over their competition. Please tell me this must go through some process of approval from someone or some department?