Competition Bureau officials searched the Toronto offices of Postmedia Network Canada Corp. and Torstar Corp. on Monday as part of its investigation into their November deal to swap and close down dozens of community newspapers.
The bureau is investigating "alleged anti-competitive conduct contrary to the conspiracy provisions" of the Competition Act, said Commissioner of Competition John Pecman in a statement Monday, the first time the bureau has spelled out the focus of its investigation.
He said the bureau is also examining the matter under the merger provisions of the act.
"Investigators with the bureau are currently gathering evidence to determine the facts relating to the alleged conspiracy," said Pecman, confirming the reports.
"There is no conclusion of wrongdoing at this time and no charges have been laid."
He refused to provide further details, citing the confidentiality of investigations, but added "we will not hesitate to take appropriate action" if violations are indicated.
Competition Bureau spokeswoman Veronique Aupry confirmed later Monday that maximum penalties under the conspiracy provisions could include fines of up to $25 million, imprisonment for up to 14 years, or both. Companies and individuals can be charged.
Postmedia and Torstar issued statements on Monday confirming the searches.
Both also insisted no contravention of the Competition Act had occurred and each said it would co-operate with the investigation.
Under the agreement they announced in November, 41 newspapers changed hands and 36 were closed, mainly in Ontario regions served by multiple publications, at a cost of nearly 300 jobs.
A Competition Bureau spokesman said soon after the transaction was announced that a review would take place.
In an interview with The Canadian Press in December, Postmedia CEO Paul Godfrey said the companies never talked about what each would do with the newspapers it was buying.
"The fact is collusion is just not legal so what we were very, very careful to do was not to speak to each other about what the end result was going to be," he said.
"Look, we have enough trouble running one newspaper chain and deciding what to do. What they do we always considered is their business."
Torstar CEO John Boynton said the transaction was designed to allow increased geographic synergies.
"By acquiring publications within or adjacent to our primary areas and selling publications outside our primary areas we will be able to put a greater focus on regions where we believe we can be more effective in serving both customers and clients," he said in a statement.
The companies said the transaction was effectively a non-cash deal, as the consideration for the publications being purchased is roughly equal to that of the publications being sold.
Torstar holds an investment in The Canadian Press as part of a joint agreement with a subsidiary of the Globe and Mail and the parent company of Montreal's La Presse.
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Companies mentioned in this story include: (TSX:PNC.A, TSX:PNC.B and TSX:TS.B)