Here’s how bad things have gotten in Canada’s troubled newspaper industry: one bankrupt chain is now being taken over by a chain that is effectively bankrupt. Believe it or not, there is a high-finance method to this madness, but it takes a vulture capitalist mindset to wrap your brain around it. Postmedia Network’s purchase of Saltwire Network will extend its grip from coast to coast, as it already dominates Western Canada with eight of the nine largest dailies in the three westernmost provinces. This purchase will give Postmedia the largest dailies in Nova Scotia, Prince Edward Island and Newfoundland to go along with the largest in New Brunswick, which it acquired from the Irving Oil family two years ago. It’s business as usual for the all-devouring Postmedia, which is somehow 98 percent owned by US hedge funds despite our supposed 25 percent limit on foreign ownership of this culturally-sensitive news medium.

Postmedia emerged this week as the surprise buyer of troubled Saltwire, which was formed in 2017 when the family owners of the long-publishing Halifax Chronicle Herald bought two dozen newspapers from Montréal-based printing giant Transcontinental, including the Telegram in St. John’s, Newfoundland, and the Guardian in Charlottetown, PEI. Private equity firm Fiera Private Debt, which in 2019 acquired the debt that Saltwire incurred in making the purchase, forced the company into bankruptcy in March, claiming it was owed more than $32 million with interest. The purchase price of $33 million included $10 million in financing by Transcontinental, but Saltwire stopped making its payments in 2019 and sued, claiming that the newspapers had been overvalued and alleging that it had been misled about their finances. The Canada Revenue Agency sued SaltWire in 2020 for unpaid HST, which now exceeds $7 million, and the company also has unpaid pension liabilities estimated at $2.7 million.

Financial statements filed by Saltwire co-owner Mark Lever show that the company made a profit of $1.95 million in 2021, but that its revenues fell by $2.3 million in 2022, leading to a loss of $1.1 million. The statements show that Saltwire received $936,903 in tax credits from the ongoing federal news media bailout in 2021 and another $950,000 in 2022. It had also been expecting to receive $2 million a year under Nova Scotia’s Digital Media Tax Credit and up to $2.5 million a year from Google under the Online News Act. Saltwire’s plan to regain financial sustainability, according to Lever, included the sale of real estate appraised at $17.5 million and “amplifying digital assets through technology so as to increase digital revenues … including the use of artificial intelligence in the news dissemination process.”

The president of CWA Canada, which represents many of Saltwire’s workers, noted that it has legally-binding collective agreements in place, which will be protected. “Postmedia has a track record of cutting newsrooms to the bone and jeopardizing local news coverage with short-sighted decisions,” said Carmel Smyth, who added that she spoke with Postmedia CEO Andrew MacLeod to express her concerns. “Our job will be to hold the company to account for its commitment to investing in local news and jobs.”

The irony is that Postmedia is just as insolvent as Saltwire is when its debt is taken into account, but its main debt holder, New Jersey hedge fund Chatham Asset Management, is also its majority owner with 63 percent of its shares. Postmedia’s most recent quarterly report showed that its revenues for the first nine months of its 2023-24 fiscal year were down 12.8 percent from last year and its operating profit fell as a result from $8.7 million to $2.6 million. Its income is now dwarfed by its debt payments of $27.7 million for the past nine months. While Chatham would thus be in a similar position to force Postmedia into bankruptcy, it has recently been allowing the company to stop making payments on its debt and instead add them to its total, which now stands at more than $300 million. Chatham has actually doubled down on its investment in Postmedia, lending it $20 million more last year to pay off its Canadian lender, whose debt would have taken first priority in the case of bankruptcy.

My 2023 book The Postmedia Effect showed how its US hedge fund owners have taken about $500 million out of the company in debt payments since taking it over out of bankruptcy in 2010. They financed their takeover by buying on the bond market much of the debt issued by its former owner, Winnipeg-based Canwest Global Communications, for as little as 5-10 cents on the dollar. Some of the debt carried interest rates as high as 12.5 percent, which if bought for 10 cents on the dollar would provide a return of 125 percent annually as long as the hedge funds could keep the company alive and paying. Since Postmedia is no longer able to make its debt payments, the company admitted in 2020 that collecting government handouts is now a “key pillar” of its business strategy. The company collected $5.3 million in federal tax credits during the past nine months and another $1.5 million from a similar Québec news media bailout.

Ottawa extended its bailout last year for another five years until 2029 after Meta blocked news in Canada on its Facebook and Instagram platforms rather than pay publishers under the new Online News Act. The limit per eligible newsroom employee was also raised from 25 percent of a maximum salary of $55,000 to 35 percent of a maximum salary of $85,000, meaning it more than doubled from $13,750 to $29,750. Google has promised to pay publishers $100 million a year under the Online News Act, which is expected to come to about $17,000 per journalist employed.

Postmedia was estimated to employ about 650 journalists last year, when it announced it would lay off 11 percent of its editorial staff. Assuming it has about 580 remaining, its payments from Google should amount to about $9.8 million a year and could total about $12.3 million with Saltwire’s expected $2.5 million. If Postmedia’s federal tax credits double to $14 million and Saltwire’s double to almost $2 million, that brings its tax credits to almost $18 million with the $2 million it also gets from Québec. To that should be added the $2 million a year that Saltwire has been collecting a year in Nova Scotia’s Digital Media Tax Credits, for which Postmedia should be eligible as “a taxable Canadian corporation.” That makes the total Postmedia could be collecting in government handouts might total more than $32 million a year.

That would be enough to not only put it back in the black, but could also even allow it to resume making debt payments to its vulture fund owners. Madness, indeed.

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.