Canada's competition watchdog will review a deal between two of the country's media conglomerates to sell multiple local newspapers to each other and then shutter most of their operations.
Torstar Corp. (TSX:TS.B) and Postmedia Network Inc. (TSX:PNC.A, TSX:PNC.B) announced Monday the two companies exchanged a total of 41 publications and would stop publishing the majority of them, resulting in 291 job losses.
Postmedia said in a statement the transaction was not subject to the Competition Act's merger notification provisions, which typically come into play if the target's Canadian assets or sales revenues generated from them exceed $88 million.
However, after the news was announced the Competition Bureau said it was planning a review.
The Commissioner of Competition can review transactions of all sizes and in all sectors "to determine whether they will likely result in a substantial lessening or prevention of competition in any market in Canada," said spokesman Jayme Albert in an email, adding the transaction can be challenged before the Competition Tribunal for up to a year.
Postmedia understands the Competition Bureau's mandate and will provide the agency with the necessary information, said Andrew MacLeod, the company's president and chief operating officer.
Torstar declined to comment, citing a lack of information beyond the announced review, said spokesman Bob Hepburn in an email.
Many observers and unions criticized the deal, saying it will lessen competition and hurt local news coverage in the affected communities.
"The scale of it, I think, is stunning and will be stunning for people who live in these communities who are going to lose access to, really, their local news," said April Lindgren, an associate professor at the Ryerson School of Journalism.
More than 200 local news sources — newspapers, online publications and others — have closed for various reasons in Canada since 2008, she said, citing data she's helped compile for the Local News Research Project.
"What they're doing is shutting down newspapers in their immediate environs so the circulation can be taken over and the news coverage can be expanded by their existing papers in the area," she said.
Lindgren said Postmedia, for instance, is shutting down Torstar newspapers in the coverage area of Postmedia's Ottawa Citizen, and Torstar is buying and closing Postmedia products in southern Ontario that might compete with its Toronto Star.
The loss of local news titles will likely get worse, not better, as advertising dollars continue to migrate to online sites such as Facebook and Google, said Mitch Diamantopoulos, an associate journalism professor in the University of Regina.
"An attempt to cut costs by eliminating competition is bad news for Canadians," he said.
MacLeod defended the transaction, saying it's not Postmedia's intent to lessen competition.
When the companies started these discussions several months ago, he said, they were "exceptionally careful" neither side knew what the other planned to do with their acquisitions.
Postmedia is trying to preserve revenue in an industry where legacy revenue streams, like print advertising, are in a state of freefall, said MacLeod, and give its digital-focused strategy time to take hold.
Canadian newspaper companies have experimented with new models such as paywalls or tablet-only offerings, most of which have failed to boost profits significantly.
The news industry has seen mass layoffs and multiple newsroom closures in recent years as companies cut costs in an effort to stay viable.
In that environment, Postmedia — and all players — need to be more careful where they focus and put resources toward growing stronger there, while moving out of other markets, MacLeod said.
Torstar declined to comment beyond their press release, in which CEO John Boynton said the transaction will allow the company "to operate more efficiently through increased geographic synergies in a number of our primary regions."
As part of the deal, Postmedia will shutter 21 of 22 community newspapers it acquired from Torstar, and free dailies Metro Winnipeg and Metro Ottawa, costing 244 people their jobs.
Torstar's Metroland Media Group Ltd., meanwhile, said it will close three of the seven daily newspapers in Ontario it's buying from Postmedia as well as all eight community newspapers it has purchased, resulting in the loss of 46 jobs.
Torstar said one job will disappear as it buys and closes the free dailies 24Hours Toronto and 24Hours Vancouver.
The companies said the transaction is 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.
— With files from Aleksandra Sagan