TORONTO - After nearly four decades of romance, Torstar Corp. and book publisher Harlequin are breaking up.
The owner of the Toronto Star newspaper and other publications announced Friday it is selling its romance novel division Harlequin Enterprises Ltd. to global media company News Corp. (
NASDAQ:NWS,
Stock Forum) for $455 million in cash.
“We think we did the right thing in exiting,” David Holland, president and CEO of Torstar, said on a conference call to discuss the sale.
Torstar (
TSX:T.TS.B,
Stock Forum) said the deal will see Harlequin stay headquartered in Toronto and run as a division of HarperCollins Publishers, also owned by media mogul Rupert Murdoch.
“While making the decision to sell was difficult, we are confident that this transaction represents excellent value for Torstar shareholders and importantly further strengthens Torstar's financial position and capital base as we continue in our evolution as a company,” Holland told financial analysts.
News of the sale shot up shares in Torstar by nearly 15 per cent, or 99 cents, to $7.67 in midday trading on the Toronto Stock Exchange.
Holland said the media company will use the cash proceeds to pay down debt and look at other business opportunities, noting that Torstar wasn't looking to part ways with Harlequin but had been approached by HarperCollins.
“There is clearly a recognition that we've got to come to grips with the next stage and what the next stage in the evolution of Torstar is. To be frank, I have not brought forward a recommendation to the board on that,” he said.
Harlequin has been part of Torstar for 39 years after the media company purchased a controlling interest in the romance novel publisher in 1975. It acquired the remaining interest in 1981.
Most known for its grocery-store paperbacks featuring cowboys, millionaires and bored housewives, Harlequin has felt the squeeze on profits in the last two years as it made the transition to keep up with a new digital environment. Higher digital royalty rates for its authors and weakness in the global economy also hurt the publisher of bodice-rippers with titles such as “The Italian's Inexperienced Mistress” and “The Ultimate Betrayal.”
In 2012, Harlequin was hurt even though the romance genre received a major boost from the blockbuster sales of the “50 Shades of Grey” series, which was published by a division of competitor Random House.
At the time, Donna Hayes, publisher and CEO of the Harlequin, said sales of the “50 Shades of Grey” series had totalled more than its entire retail division in North America.
Harlequin has about 1,000 employees worldwide - with 350 employees in Canada. It publishes the work of more than 1,300 authors and releases more than 110 titles monthly through publishing operations in 16 countries. About 95 per cent of Harlequin's revenues are from outside Canada.
HarperCollins president and CEO Brian Murray said the acquisition will help the publisher move into high-demand countries outside North America, particularly the large markets of Germany, Japan and France. Currently, HarperCollins only publishes in English, and operates a small romance fiction division.
“(Romance readers) tend to be voracious readers. They read sometimes as many as 50 to 100 books a year. I don't see that as going away any time soon,” he said.
“Certainly our whole industry is going through a transition from print to digital, so the business will change but I think the reading of romance books is not going away.”
Murray admits he has never finished a Harlequin novel from front-to-cover, but he understands the appeal behind fiction and such a valuable “consumer book brand” for women.
“They've always been popular. There is something about the escapism, the stories, that are aspirational,” he said.
The transaction, subject to approvals, is expected to close later this year.
Torstar recently reported in its fourth quarter that its book division's revenue dropped to $95.02 million from $104.99 million in the fourth quarter of 2012, and its operating profit declined to $10.25 million from $14.81 million.
Its media operations faced continued pressure on print advertising revenues, although Torstar has said there was relative improvement in the fourth quarter.
Late last year, Torstar announced it was reorganizing the advertising sales operations at the Toronto Star, Canada's largest newspaper, and moving them to an affiliated company.
News Corp. is a media and information services with news and information services, cable network programming in Australia, digital real estate services, book publishing, digital education, and pay-TV distribution in Australia. It's headquartered in New York and has activities in the United States, Australia and United Kingdom.
Torstar holds an investment in The Canadian Press as part of a joint agreement with the parent companies of the Globe and Mail and Montreal La Presse.
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