Quebecor withdraws bond issue it planned to use to buy Osprey

One of the ways that Quebecor was going to pay for its purchase of Osprey Media Income Fund was to sell a junk bond issue. But the company has cancelled plans to float a $750 million issue in the face of what's described as "a jittery junk bond market", according to a Reuters story. Quebecor's timing could hardly have been worse, having announced its plans only a day before there was a sharp selloff of so-called "junk" or high-yield bonds as U.S. investors worried about weakness in the U.S. sub-prime mortgage market.

Not only was the Osprey sale to be financed in this way, but so was its plan buy all of the common shares of Nurun it did not already own, and to make a payment to the Carlyle Group.

Quebecor forced to up its bid to win Osprey Media Income Fund

The unitholders of the Osprey Media Income Fund will probably put Torstar and Black Press on their Christmas card list this year. Quebecor Inc. was trying to buy Osprey for $7.45 a unit when Black came along and offered $8.25. (See previous posts. No fair, said Quebecor, we had a lock on this. Not so, said the courts. Oops, said Quebecor and upped its bid to $8.45, which will probably do the trick (and give Black Press a premium on the shares it has already acquired.

Toronto Star: Quebecor presented its new offer immediately after failing earlier Thursday to get an Ontario court to block Osprey from negotiating with Black Press. Quebecor Media announced May 31 it had a deal to buy Osprey, which owns a group of Ontario papers including some of the country’s oldest dailies. But Black Press, run by David Black — no relation to Conrad Black — announced a higher offer on June 27, sparking the court battle with Quebecor.

“I think Black Press has to realize that QMI (Quebecor) won’t let this one go,” said Adam Shine, a media analyst with National Bank Financial. “I’d be surprised to see the bidding war go higher, as these assets aren’t even worth what’s currently being offered.”

Quebecor asks court to forbid Osprey Media from accepting higher bid

Quebecor Inc. is asking the courts to forbid Osprey Media Income Fund from considering or dealing with takeover bids from anyone else. This is aimed directly at the Torstar-backed bid by Black Press Ltd. of Victoria to up the ante for the Osprey newspapers and magazines; it topped the Quebecor bid by $1 a unit. Quebecor's application will be heard -- and defended -- at the Superior Court of Justice in Toronto on July 4.

Quebecor, which had at one point entered into an agreement with Torstar to carve up Osprey between them, says it believes that once Osprey accepted their bid at $7.25 a unit, they were at a standstill and unable to deal with anyone else (something that Osprey unitholders might disagree with when faced with an $8.25 offer from Black Press).

Osprey says its deal with Quebecor contains the customary provision that it could accept higher, unsolicited bids in certain circumstances. Clearly, Quebecor thinks this bid is not so much unsolicited as payback from the jilted Torstar (see earlier posts).

Osprey Media Income Fund still in play and the price keeps going up

The sale of newspaper and magazine company Osprey Media Income Fund looked like a slam dunk for Quebecor Media, leaving a bruised Torstar group sulking in the corner. Torstar and Quebecor have been squabbling about who did what to whom and about whether or not they had a deal to split up the Osprey properties, which include well-known dailies like the St. Catharines Standard and the Kingston Whig-Standard.

Now, through its subsidiary, Black Press of Vancouver, Torstar has topped Quebecor's bid by $1 a unit or $404.5 million compared to Quebecor's offer of $355.5 million. (Torstar owns 19.4% of Black Press.

A story in the Toronto Star says Quebecor has until July 5 to better that offer. All of which is good news for the unitholders of the Osprey Trust, but only goes so far. When it was first created the Osprey units went for $10. Even the richer Black Press offer only brings this to $8.25.

Quebecor is now crying foul, saying that Osprey had a "standstill agreement" that prevented it from seeking other buyers. Osprey says that's nonsense.

Whatever happens, a whole stable of mid-sized newspapers and magazines (including the former Town Media Group (Hamilton magazine etc.)) will be subsumed inside one or the other of Canada's print media giants.

Osprey Media bought by Quebecor

Quebecor Media has purchased Osprey Media Income Fund for $517 million.

Michael Sifton put together the Osprey Media chain of newspapers and magazines out of the smaller dailies and weekly newspapers and magazines that CanWest Media either didn't want or wanted to sell to pay down debt from buying Conrad Black out of his Hollinger empire. In all, Sifton's company bought 54 newspapers, including the St. Catharines Standard, Peterborough Examiner and the Kingston Whig-Standard. Along with them, he acquired some local magazines, one national title (Vines magazine) and later added the Town Media group out of Hamilton (flagship: Hamilton magazine).

He very profitably converted this tidy empire into an income trust and, for a time, was very successful, according to a story in the Globe and Mail.

Backed by venture capital supplied by the Ontario Teachers Pension Plan and Bank of Nova Scotia, the strategy was to build an empire of small Canadian papers that would churn out consistent payouts to investors. But fierce competition in Ontario from Toronto-based Torstar Corp. has sent the units tumbling nearly 45 per cent to $5.55 since their debut.

The sale brings to an end more than a century of newspaper publishing for the Sifton family. Mr. Sifton is great-grandson of Sir Clifford Sifton, a federal cabinet minister who bought the Winnipeg Free Press in the 1890s.

Stalling revenues meant that the company had to cut its distribution to unit owners in late 2006. Then it was hit with another whammy as the federal government announced that it was going to eliminate the tax advantages of the trusts by 2011. Speculation immediately began that the company was on the block and, in March, Sifton confirmed this. However the smart money was on the possibility of Torstar Corporation buying the chain to add its stronger properties to the ballooning Metroland chain. In fact, it has been fierce competition from Torstar that had helped, in part, to pare down revenues for Osprey and put it in play.

Quebecor paid the equivalent of $7.25 a share, a 30.6-per-cent premium over the closing price of the units on March 5, before Osprey announced it was reviewing its strategy.

Essentially, the purchase means that the Osprey papers will be rolled into what is sometimes called the Sun chain, although it includes Le Journal de Montreal and Le Journal du Quebec, the London Free Press as well as the Suns in Toronto, Ottawa, Calgary, Edmonton and Winnipeg. As well, Quebecor owns a chain of free daily commuter papers under the flag 24 Hours.

Torstar rumoured to be looking at Osprey Media

Speculation is increasing that Osprey Media Income Fund, which has been struggling to maintain enough profits to continue paying distributions to its fund holders, may be sold to Torstar.

A story in the Globe and Mail suggests a possible deal whereby Torstar would buy and keep (or fold) various dailies and weeklies that overlap with or fit with its own dominance in south central Ontario. The speculation is that it would sell on the rest of Osprey's properties to Transcontinental Media.

The story hinges, rather tentatively, on owner Michael Sifton's decision to skip an industry conference and stay close to home. Osprey owns a number of magazines, including the former Town Media group, formerly owned by Wayne Narcisco, which includes Hamilton magazine. Its only national magazine is Vines.

[UPDATE] A Canadian Press story Friday said that Osprey may have no choice but to be broken up if a coalition of buyers come forward with the idea of taking what fits with their particular portfolio. On the other hand, the changes in the rules on income trusts may also be giving Sifton second thoughts and he may be looking to his financial advisors to craft him a way to get out of the increasingly unsustainable income trust and into some other financial arrangement.

Sifton had said Wednesday, after the fund's annual general meeting, that Osprey is still keeping its options open, including capital restructuring, or new investment as an alternative to a sale.

The fund's board said in March it would begin the review in light of the federal government's announcement last fall on new tax rules affecting income trusts.

"The process is not just about selling," Sifton said. "It's also looking at capital structures. We're currently an income trust. Maybe there's a different type of vehicle we should be in. That's all the sort of analysis that the committee and the financial adviser will provide. "

"It's not necessarily a sale, it could be just a different capital structure."

Osprey on the block

Osprey MediaIncome Trust, the holding company for many small newspapers and magazines, has been struggling to retain investor interest in the face of declining distributions. This was not made easier by the government's decision to begin taxing income trusts in a few years.

According to a story in the Globe and Mail and a release by the company, the board of the trust has decided "to proceed with a process to consider and review strategic alternatives that may be available to Osprey to enhance unitholder value" -- in other words, to shop the company around. Likely that two of its largest shareholders -- Ontario Teachers Pension Plan and the Bank of Nova Scotia -- are pressing the issue and would be interested in selling at the right price, somewhere north of some $5 per unit offers that are rumoured to have been on the table for some time now.

The price of the company's units have dropped about 45% since its inception and is now about $5.55. Osprey's original strategy, which was to build a small empire of small newspapers (many of them snapped up after Conrad Black's breakup of Hollinger) and magazines that would spin off regular payments to investors. That's clearly not going to work, now. A tough advertising market meant the company was unable to keep up the cash distributions. One of the possible buyers for the Osprey properties could be Torstar, whose fierce competition in various markets is one of the reasons why the company is in the fix it is.

Osprey bought Town Media, publishers of Hamilton magazine, in 2004; the only national magazine it owns is Vines.

For background on this story, look at earlier posts here and here.

Osprey continues to struggle with ads and unit value

Osprey Media Income Fund, an owners of small daily and weekly newspapers and small magazines, has written down about$170 million of its value, blaming a slumping advertising market, particularly automotive.

The company has seen the price of its units steadily erode, threatening its ability to make the kinds of distributions that keep people happy with income trusts. Last fall, the value of its units fell by 15% when the federal government announced that such trusts would be taxed, starting in 1011. Yesterday, the value of the units was $5.73, which is half what they once were. So far, the company is still paying out about $0.64 cents a unit, but there is some question about how long that can continue, given the 2006 loss of $113.4 million.

Osprey president and CEO Michael Sifton shone the brightest light he could on the situation by noting that the company had been able to post revenue growth of $7.2 million, or about 3.4 per cent for the year.

See earlier post about this company.

Income trust rule changes will affect magazines

No matter what happens on the financial markets this morning as a result of the government's surprise decision on income trusts (taking away much of their tax advantages) it will impact the magazine industry. As but two examples (some readers may suggest others), consider Rogers Media, which had recently become a partner with Aeroplan, the Air Canada points system, an income trust that was allowing purchase of magazine subscriptions using points. And Osprey Media, Michael Sifton's clutch of small newspapers and magazines, which has been struggling to meet its payouts even with the previously favourable rules and must now be faced with reconsidering the whole idea.

This income trust announcement probably won't take the gloss off the results announced by Rogers yesterday, in which its third quarter results were up 14.7% and profits up 33% and the company announced a stock split and a hike in its dividend. (It announced that even its media holdings were up 12.2%, but keep your shirt on, much of that was not the result of a surge in magazine publishing but the result of ad revenue associated with the World Cup of Soccer and Blue Jays baseball on Sportsnet.)