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Canwest's newspapers benefit from Torstar earnings as sales deadline nears

TORONTO - The newspaper assets of Canwest Global Communications are looking more attractive to potential buyers on the heels of surprisingly strong earnings from media giant Torstar Corp., one of the companies widely considered a potential bidder for the dailies.

TORONTO - The newspaper assets of Canwest Global Communications are looking more attractive to potential buyers on the heels of surprisingly strong earnings from media giant Torstar Corp., one of the companies widely considered a potential bidder for the dailies.

Interested buyers had until midnight Friday to express interest in buying the papers - which include National Post, the Vancouver Sun, Montreal Gazette and Ottawa Citizen - part of a larger sale process that will likely continue throughout the spring.

Industry analyst Duncan Stewart said that Torstar's strong fourth-quarter profit announced this week carries a broader significance for the Canadian newspaper industry and will ultimately help Canwest's operations look more viable.

"Everybody knows you can probably buy these assets for a relatively good price today, and count on things getting better..." he said.

"Almost everybody who was thinking of bidding for the... assets knew we were in the middle of a horrible cyclical downturn and that we were going to see some sort of recovery."

The goal for Canwest's senior secured lenders, the Canadian banks, is to drive up enough interest in the newspaper division to drive the bids above a $925-million starting price. Analysts and observers have suggested the batch of papers could fetch more than $1 billion.

Canwest's TV stations have already been sold in a separate deal to Shaw Communications Inc. (TSX:SJR.B), the big Calgary cable and satellite TV operator.

Torstar (TSX:TS.B) earnings stole the spotlight Wednesday as the company turned around its losses, and gave further weight to reports which say that it could make a move to grab Canwest's papers.

The Toronto-based company reported a solid $57.4-million profit in the fourth quarter, reversing a big year-earlier loss, as the newspaper, book and Internet publisher weathered a turbulent economy and benefited from earlier cost cutting.

"Things have turned around at the Star and although they aren't where they were three or four years ago, they are a lot better than they were three or four months ago," said Stewart, director of research and analysis at DSam Consulting.

"That was primarily due to a little bit of recovery and an awful lot of cost cutting. And of course, there's a limit to how long you can keep doing that."

Several bidders have already announced their intention to make an offer for part of the assets, with former Canadian Liberal Senator Jerry Grafstein leading a bid for just the Post, the Gazette and the Citizen.

That offer left out other city and community papers including the Edmonton Journal, Victoria Times-Colonist and two Vancouver dailies, the Sun and Province.

Reports have named various other bidders, including one from a group led by National Post chief executive Paul Godfrey, and another from Victoria, B.C.-based Black Press.

Other reports have said that Glacier Media Inc. could be looking to acquire some of the smaller newspapers.

Meanwhile, Torstar hasn't publicly expressed an interest in bidding on Canwest's papers though chief executive David Holland has never officially ruled it out.

On Friday, he declined to discuss the company's interest in Canwest, or whether a bid was going to be made.

"I'm not in a position to comment on that," he said.

Holland, however, noted that Torstar is focused on tuck-in acquisitions for its digital media assets, which include the Toronto Star website, Wheels.ca and Workopolis.

Canwest would potentially offer a broader range of websites, including its Canada.com newspaper homebase, Working.com and Driving.ca.

Torstar and the Canwest dailies are no strangers to each other and linked up in the past in a joint partnership that thwarted potential takeovers of the dailies, then called the Southam Newspaper Group.

In the mid-1980s, Torstar and Southam agreed to a share exchange worth $225 million to thwart a potential takeover of the company after the death of longtime CEO Gordon Fisher.

Fisher was the latest in a line of Southam family members to run the publicly traded company founded in 1877 by William Southam.

Under the deal, Torstar gained a 23 per cent stake in Southam but signed an agreement barring it from buying a controlling interest in its rival for at least ten years.

In return, Southam acquired about 30 per cent non-voting stake in Torstar. The deal also enabled the Southam family to retain control of Southam Newspapers while holding only 23 per cent of outstanding shares.

Southam sold its Torstar stake in 1992 for $191 million and used the money to pay down debt.

Later that year, Conrad Black, head of newspaper and magazine publisher Hollinger Inc., bought Torstar's stake in Southam for $259 million and eventually took over the big newspaper chain.

Black later sold Southam Newspapers to Canwest for mote than $3.2 billion at the top of the market in 2000.

 
 
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