Postmedia Network Canada Corp. (“Postmedia” or the “Company”) today
announced it has entered into a definitive agreement with Quebecor Media
Inc. (“QMI”) to purchase Sun Media Corporation’s stable of 175 English
language newspapers, specialty publications and digital properties (“Sun
Media”), including the Sun chain of dailies, consisting of The Toronto
Sun, The Ottawa Sun, The Winnipeg Sun, The Calgary Sun and The Edmonton
Sun, as well as The London Free Press and the free 24 Hours dailies in
Toronto and Vancouver. The purchase price is $316 million in cash less a
$10 million adjustment related primarily to real estate properties to be
disposed of by Sun Media prior to closing, and other customary price
adjustments to be determined subsequent to closing. The transaction also
includes the acquisition of associated English language digital
properties, including the Canoe portal outside of Quebec, as well as
QMI’s Islington printing plant in Ontario, and 34 owned real estate
properties in Ontario, Alberta and Manitoba.
“This investment by Postmedia is a strong endorsement of the future of
the Canadian newspaper industry and made-in-Canada journalism,” said Rod
Phillips, Chair of the Board. “We are excited to be the custodians of
many of Canada’s best known and trusted media brands, now and in the
future.”
In calendar year 2013, the Sun Media properties generated Adjusted EBITDA1
of approximately $90 million on Adjusted Revenue1 of $508
million. For the last 12 months ending June 30, 2014 the Sun Media
properties generated Adjusted Revenue1 and Adjusted EBITDA1
of approximately $487 million and $87 million, respectively. In
addition, the Company anticipates annualized cost synergies in the range
of $6 to $10 million. The additional free cash flow will improve the
financial strength of the Company and allow it to accelerate its
deleveraging efforts.
“This acquisition brings together an impressive stable of brands that
collectively create a stronger Canadian media platform that is better
positioned to compete against foreign-based digital offerings and offers
a greater range of choices to our readers,” said Paul Godfrey, President
and Chief Executive Officer of Postmedia. “We intend to continue to
operate the Sun Media major market dailies and their digital properties
side by side with our existing properties in markets with multiple
brands as we have in Vancouver with the Province and the Vancouver Sun
for more than 30 years. Our advertisers will have the opportunity to
reach audiences across the country with a made-in-Canada option for
their marketing programs.”
The acquisition of the Sun Media properties is expected to:
Significantly Enhance Cash Flow Profile and Pro Forma Leverage
-
Adjusted EBITDA1 on a pro forma combined2 basis
of approximately $204 million (excluding synergies) will improve
Postmedia’s financial strength and free cash flow
-
Reduces net debt/Adjusted EBITDA1at May 31, 2014 from 3.8x
to a pro forma combined2 ratio of 2.9x
Generate Synergy Potential
-
Anticipated cost synergies in the range of $6 to $10 million per annum
within two years
-
Extended digital reach in order to compete more effectively with
larger competitors
Increase Owned Real Estate
-
Transaction includes real estate portfolio with more than one million
square feet of space and estimated value in the range of $50 to $60
million
-
Potential sales of Sun Media properties subsequent to closing provides
additional opportunities to accelerate debt reduction
The agreement has been approved by both companies’ Boards of Directors
and is subject to customary regulatory approvals, including from the
Competition Bureau. During the regulatory review period, QMI will
continue to operate the Sun Media properties.
Financing
Postmedia will finance the acquisition through a combination of debt and
equity.
The debt financing will be provided through the issuance of an
additional $140 million of its currently outstanding 8.25% Senior
Secured Notes due 2017 (the “Notes”). An existing Noteholder, who owns
more than 50% of the currently outstanding Notes, has entered into a
subscription agreement pursuant to which it has agreed to purchase
subscription receipts representing the entire amount of the additional
Notes. The subscription receipts will bear interest at the same rate as
the Notes and will automatically be exchanged for the additional Notes
on completion of the acquisition, for no additional consideration.
Closing of the subscription receipt offering is expected to occur in
late October, following the completion of a formal consent solicitation
to approve, amongst other things, amendments to the existing Note
indenture required to facilitate the incremental funding of the
additional Notes. The amendments must be approved by the holders of a
majority of the outstanding Notes, but with the subscriber for the new
Notes holding a majority of the Notes and agreeing to approve the
amendments, this approval is assured.
Postmedia intends to raise the balance of the funds required for the
acquisition by way of a rights offering of subscription receipts (the
“Rights Offering”) for gross proceeds of $186 million less net proceeds
from real estate sales of up to $50 million, to the extent available,
prior to the launch of the Rights Offering. Postmedia has entered into a
standby purchase agreement with its largest shareholder, GoldenTree
Asset Management LP (“GoldenTree”) pursuant to which GoldenTree
has agreed to take up any subscription receipts not otherwise subscribed
for under the Rights Offering. In connection with its backstop of the
rights offering, GoldenTree will enter into a voting restriction
agreement with Postmedia that will limit the number of votes that
GoldenTree will be entitled to cast at any meeting of Postmedia’s
shareholders to 33 1/3%, less one share, of the total number of
outstanding voting rights in respect of all of the issued and
outstanding shares at such time, regardless of how many shares
GoldenTree owns at such time.
The Rights Offering will be subject to regulatory approval. Further
details regarding the Rights Offering will be provided in the prospectus
that Postmedia will file in Canada in connection with the distribution
of the rights.
Under the terms of the Rights Offering, shareholders of Postmedia as of
a record date, which is yet to be determined, will receive rights to
subscribe for subscription receipts of Postmedia. Each subscription
receipt will be automatically exchanged for one Postmedia variable
voting share on completion of the acquisition, without additional
consideration. The subscription price under the rights offering will be
not more than $1.10 per subscription receipt. Postmedia will apply to
list the rights, the subscription receipts and the variable voting
shares underlying the subscription receipts for trading on the TSX. The
rights will be exercisable for at least 21 days following the date of
mailing of the final prospectus. It is currently anticipated that the
Rights Offering will be launched in January, 2015.
Advisors
Canaccord Genuity Corp. acted as M&A advisor to Postmedia; Scotiabank
and RBC Capital Markets are acting as financial advisors and joint
book-runners on the placement of the additional Notes. Canaccord Genuity
Corp. and Scotiabank are acting as advisors on the Rights Offering.
Goodmans LLP and Hicks Morley LLP are counsel to Postmedia;
PricewaterhouseCoopers LLP provided financial due diligence and tax
advice during the due diligence process.
NOTES:
1 This news release makes reference to Adjusted
Revenue (revenue excluding revenue associated with closed properties)
and Adjusted EBITDA (operating income before depreciation, amortization,
impairment and restructuring and excluding any income or losses
associated with closed properties) to assist users in assessing
financial performance. The Company’s management and Board use this
measure to evaluate the ability of the Company to incur and service debt
and to make operating decisions. Adjusted EBITDA is not a defined term
under IFRS and may not be comparable to similar measures presented by
other companies.
2 Based on the 12 months ended May 31, 2014 for
Postmedia and the 12 months ended June 30, 2014 for Sun Media.
News Conference / Webcast
Postmedia invites media to attend a news conference today, Monday,
October 6, 2014, at 10:30 a.m. Eastern Time at Postmedia Place, 11th
Floor, 365 Bloor Street East, Toronto, ON. A live webcast of the press
conference will be available at the following link:
http://www1.webcastcanada.ca/online/registration/postmedia.php
The news conference will be hosted by:
-
Paul Godfrey, Postmedia President and Chief Executive Officer
-
Rod Phillips, Chair, Postmedia Board of Directors
-
Doug Lamb, EVP and Chief Financial Officer
-
Wayne Parrish, Chief Operating Officer
Reporters or photographers wishing to attend the news conference may
register in person at the door. Media credentials and photo ID are
required to register. A media box with audio feeds will be available
onsite for media use.
Investor / Analyst Call
After the news conference, at 11:45 a.m. on October 6, 2014, Investors
and Analysts are invited to a teleconference hosted by Paul Godfrey,
President & CEO and Doug Lamb, EVP & CFO.
Investors and analysts may participate in the call at 1-888-754-4437.
Media and other interested persons are invited to participate in the
call on a listen-only basis at 1-800-734-8592.
For those unable to participate in the live call, a recorded version
will be available approximately one hour after the call until October 13
and can be accessed at 416-626-4100 or 1-800-558-5253 using the passcode
21736174. A recording of the call will also be posted on the Company’s
website.
About Postmedia Network Canada Corp.
Postmedia Network Canada Corp. (TSX:PNC.A, PNC.B) is the holding company
that owns Postmedia Network Inc., the largest publisher by circulation
of paid English-language daily newspapers in Canada, representing some
of the country’s oldest and best known media brands. Reaching millions
of Canadians every week, Postmedia engages readers and offers
advertisers and marketers integrated solutions to effectively reach
target audiences through a variety of print, online, digital, and mobile
platforms.
Forward-Looking Information
This news release may include information that is “forward-looking
information” under applicable Canadian securities laws and
“forward-looking statements” within the meaning of the U.S. Private
Securities Litigation Reform Act of 1995. The Company has tried, where
possible, to identify such information and statements by using words
such as “believe,” “expect,” “intend,” “estimate,” “anticipate,” “may,”
“will,” “could,” “would,” “should” and similar expressions and
derivations thereof in connection with any discussion of future events,
trends or prospects or future operating or financial performance.
Forward-looking statements in this news release include statements with
respect to the acquisition of certain Sun Media publications, the review
of the transaction by the Competition Bureau, the proposed debt and
equity financing for the transaction and the anticipated benefits to
Postmedia from the transaction and financings, including improved
financial strength, free cash flow, leverage ratios and synergies. Any
"financial outlook" in this news release, as defined by applicable
securities legislation, has been approved by management of Postmedia and
is included for the purpose of illustrating the materiality of the
acquisition of the assets of QMI’s English language publications, and
for no other purpose. By their nature, forward-looking information and
statements involve risks and uncertainties because they relate to events
and depend on circumstances that may or may not occur in the future.
These risks and uncertainties include, among others: the possibility
that the transaction, including the related financings, will not close
(including, without limitation, as a result of the failure to gain
regulatory approvals); the risks associated with the possible failure to
realize the anticipated synergies in integrating the operations of the
Sun Media publications with the operations of Postmedia; competition
from other newspapers and alternative forms of media; the effect of
economic conditions and structural changes in the industry on
advertising revenue; the ability of the Company to build out its digital
media and online businesses; the failure to maintain current print and
online newspaper readership and circulation levels; the realization of
anticipated cost savings; possible damage to the reputation of the
Company’s brands or trademarks; possible labor disruptions; possible
environmental liabilities, litigation and pension plan obligations;
fluctuations in foreign exchange rates and the prices of newsprint and
other commodities. For a complete list of our risk factors please refer
to the section entitled “Risk Factors” contained in our annual
management’s discussion and analysis for the years ended August 31,
2013, 2012 and 2011. Although the Company bases such information and
statements on assumptions believed to be reasonable when made, they are
not guarantees of future performance and actual results of operations,
financial condition and liquidity, and developments in the industry in
which the Company operates, may differ materially from any such
information and statements in this press release. Given these risks and
uncertainties, undue reliance should not be placed on any
forward-looking information or forward-looking statements, which speak
only as of the date of such information or statements. Other than as
required by law, the Company does not undertake, and specifically
declines, any obligation to update such information or statements or to
publicly announce the results of any revisions to any such information
or statements.
Copyright Business Wire 2014