Fairfax, Torstar return to CanWest hunt

Share

The race to buy the country's largest chain of newspapers has been whittled to a few players. The winner will redraw the Canadian media landscape.

The deadline for bids in the auction of CanWest Global Communications Corp.'s 46 newspapers closed Friday night, and sources indicate the field of suitors has been reduced to as few as three finalists.

Fairfax Financial Holdings Ltd., which pulled out of the auction Thursday when talks with its banks broke down, returned to the table Friday to submit a bid in conjunction with Torstar Corp., owner of the Toronto Star newspaper.

Buyout specialist Birch Hill Equity Partners Management Inc. is also believed to be on the final list of bidders. Sources indicate the company is looking to acquire the CanWest newspapers and sell them off in a future initial public offering, once the economy improves.

West Face Capital Inc. also submitted a bid, which involves a proposed buyout by the unsecured creditors of the newspaper operations. The group also includes New York hedge fund Golden Tree Asset Management.

Each of the potential buyers submitted non-binding bids in March and had until last night to formalize their offers. However, it is unknown if two potential bidders who were involved in submitting preliminary pitches were able to meet the deadline last night.

Former CanWest chief executive officer Leonard Asper was contemplating a bid in recent weeks, with backing from the Serruya family that is a major shareholder in ice cream maker Cool Brands International Inc. It is unclear whether the group followed through on a final offer.

Similarly, B.C. newspaper owner David Black was involved in the first round of offers, but it is not known if he formalized an offer prior to last nights deadline.

The CanWest chain includes 11 large daily newspapers, such as the National Post, the Ottawa Citizen and the Vancouver Sun, and 35 community papers. The business is being sold by the company's senior secured creditors, who are looking to recoup about $950-million they are owed.

Bank of Nova Scotia is leading the senior secured creditors, a group that includes all of Canada's major banks. If none of the offers prove attractive enough, the group would hold onto the newspaper chain and sell it themselves through an IPO at a later date.

RBC Dominion Securities is leading the sale and will begin sifting through the details of each offer in the coming week. The process is expected to take at least three weeks before a winner is determined.

The amount of cash in each binding offer will be key to determining which group will walk away with the assets. The senior creditors want to recoup as much of their money up front as possible and are not interested in staying on as part owners, operators or major lenders of the newspapers.

Sources close to the process indicate RBC has asked for at least $300-million in cash from potential buyers.

Torstar, with the deep pockets of Fairfax, could have the most cash-heavy bid. Fairfax walked away from the auction this week amid a stalemate with its banks over lending terms, but was able to secure a last-minute deal on financing Friday morning.

Reluctant to provide funding for newspapers assets that have struggled in recent years, Fairfax's lenders wanted a higher return. The resolution allowed Fairfax and Torstar to submit a cash-heavy bid, sources say.

Fairfax owns just under 19 per cent of Torstar's non-voting shares. In addition to owning the Toronto Star, Torstar also holds 97 newspapers throughout Ontario, including the Hamilton Spectator.

Birch Hill was an unknown participant in the process until now, but is likely a long-shot. Sources indicate the Toronto-based buyout specialist is working with former newspaper owner Michael Sifton.

However, Birch Hill is attempting a bid that involves very little cash -- it is offering about $200-million up front and asking the sellers to accept at least $650-million in equity that would be sold off as shares in a future IPO.

The unsecured creditors led by West Face are proposing to pay about $950-million, then also sell the newspapers in an IPO. The group owns bonds with a face value of $450-million, but purchased the debt at 30 to 40 cents on the dollar. The pitch is said to include a future IPO of about $1.1-billion or more, in a more favourable market.