Postmedia Network may be trying to pull another fast one in a desperate attempt to stay afloat, but if Ottawa is smart it will put its foot down and say “we won’t get fooled again.” The only problem is that our federal politicians have proved repeatedly that they are no match for the soulless US hedge funds and private equity players that now own most of Canada’s newspaper industry. As law professor Michael Geist cruelly observed from following their recent lobbying campaign for Bill C-18, “it is increasingly apparent that [Heritage Minister Pablo] Rodriguez and the government have been played for suckers” by the high finance wizards.

The shock announcement this week that Canada’s largest newspaper chain was in merger talks with NordStar Capital, which owns the country’s second-largest chain and its largest daily, the Toronto Star, may not be the “nightmare” that Geist and others foresee, at least not if Ottawa plays its cards right. In fact, it might be an opportunity to roll back some of the most disastrous effects that foreign hedge funds have already wreaked on our local news media in Canada.

Wow: Postmedia and the owners of the Toronto Star confirm merger talks. pic.twitter.com/aOSajJ3gIf

— Simon Houpt (@simonhoupt) June 27, 2023

The merger would be the second between Canada’s two largest newspaper chains in the past decade and would result in one company publishing three of the four dailies in Toronto, 42 of the 71 dailies across the country, and 135 of our 986 community newspapers, according to News Media Canada’s latest count last summer. The new second-largest chain in Canada would be Black Press, which operates only in BC and Alberta.

This level of ownership concentration should be clearly unacceptable to Ottawa, no matter how impotent its Competition Bureau, which has been hamstrung by the so-called “efficiencies” defence in its enabling act that only reared its ugly head the last time our two largest newspaper chains merged. That was in 2014, when Postmedia bought Sun Media, which was known for its colourful tabloids that sprouted across the country from the original Toronto Sun founded in 1971.

The popularity of compact newspapers in Canada disproved the prevailing Natural Monopoly Theory of Newspapers, which predicted that economic forces would encourage mergers and closures until only one paper survived in each market. In cities that had seen their second-place daily fold, such as Edmonton, Winnipeg, and Ottawa, spritely Sun clones soon began appearing. I was a reporter for the Vancouver Province in the 1980s, and early in that decade our broadsheet editions became thinner and thinner for want of advertising. Predictions grew that a tabloid Sun would soon invade our territory, so we took the plunge and “went tab” in 1983. The ads soon poured in and our circulation soared to almost exceed that of our partner since 1957, the Vancouver Sun, which the company’s owners would not allow.

Postmedia Network’s then-CEO Paul Godfrey swore up and down that the chain would keep the Sun newspapers it acquired in four of Canada’s largest cities, which he had ironically headed throughout the 1980s, separate from its market-leading broadsheets in Calgary, Edmonton, and Ottawa. The Competition Bureau neglected to get that promise in writing, however, and less than two years later the newsrooms in those cities were merged, along with those in Vancouver, where the owners of what was ruled an illegal monopoly had promised from the outset to keep separate newsrooms forever.

The main concern over a Postmedia-NordStar merger is how it would affect the Star’s progressive journalism, as it is required under its famous Atkinson Principles to fight for social justice. Postmedia, on the other hand, has been imposing an increasingly right-wing agenda on its newspapers recently, including at the traditionally liberal former Southam dailies. The National Post, which was founded by Conrad Black in 1998 after he took over the Southam chain, and the Sun tabloids have all been very conservative since their founding, so the thought of adding the Star to this right-wing monolith is repugnant to most Liberals.

Under the ongoing merger talks, however, the Star would be spun off into a separate company to preserve its autonomy and NordStar owner Jordan Bitove would remain its publisher and controlling shareholder with 65 percent ownership. The Star’s finances are now a secret, since NordStar is a privately-owned company that does not have to report its earnings publicly. The private equity firm bought its owning Torstar Corp. and its Metroland chain of Ontario weeklies and six dailies for $51 million in 2020 but spun off minority ownership of its Verticalscope digital subsidiary the next year for $125 million.

Postmedia, on the other hand, is facing bankruptcy. Its earnings last year sank to only $13 million, $9.9 million of which came from government aid, which was nowhere near enough to cover the more than $30 million in annual payments owed on its debt, most of which is held by the US hedge funds that own 98 percent of its shares. They are apparently willing to convert a “significant” amount of that debt, which was listed at $274 million in its last annual report, into even more shares, “resulting in significant economic dilution to existing shareholders.”

That sounds suspiciously like the fast move Postmedia pulled the last time it began to go under water in 2016, when the hedge funds forgave about half of the more than $600 million in debt they then held in exchange for raising their ownership from 92 percent to 98 percent. There is now not much more of the company they can own, especially given that there is supposed to be a 25-percent limit on foreign ownership of newspapers, which is another law that Ottawa didn’t bother enforcing.

The last debt rearrangement was both a bankruptcy in disguise and, unbeknownst to most Canadians, a change in ownership. The New York Times noted a few years later that it was kept fairly quiet at the time that Goldentree Asset Management had been replaced as the company’s majority owner by Chatham Asset Management of New Jersey, which now holds 65 percent of Postmedia’s shares in addition to much of its debt.

After being out-witted and lied to for years by Postmedia, Ottawa should look askance at its latest scheme and holler “not so fast.” The government actually holds most of the cards now, with Bill C-18, the Online News Act, having received royal assent but not yet enacted into law pending negotiations with Google and Facebook over just how much, if anything, they might be prepared to contribute to news provision in Canada. New federal revenues will also soon be flowing in from taxes on streaming services under Bill C-11, the Online Streaming Act, and a new three percent tax on online enterprises in the Digital Services Act.

Together with whatever Google and Facebook might contribute, that could go into a formidable arm’s length fund from which to finance robust journalism in Canada, and even quickly pay off what might still be owed to the hedge funds. Such a fund might be less contentious than the tax credits currently being issued under the $595 million bailout that ends this year, or the mandatory bargaining code contemplated by Bill C-18.

Robust means competitive, however, so in addition to spinning off the Toronto Star into a separate company, perhaps the Sun tabloids that restored local newspaper competition across the country decades ago should also be spun off and their separate newsrooms restored. Maybe my dear old Vancouver Province could even be added to that company, along with other titles. That would go a long way to fixing some of the damage done to our news ecosystem by previous Ottawa politicians.

Marc Edge is a journalism researcher and author who lives in Ladysmith, BC. His books and articles can be found online at www.marcedge.com.