On September 3, 2014, the Competition Bureau (the "Bureau") announced the outcome of the divestiture process in the Transcontinental/Quebecor deal, which resulted in the sale of only 14 of the 33 community newspapers that were to be sold off. The unsold papers will cease publication (with the result that Transcontinental will own the only remaining community newspaper in several communities). This outcome is not surprising and illustrates the difficulty in effecting divestiture remedies in struggling industries.
Background
As discussed in our previous blog post (see our blog post from May 28, 2014), in December 2013, Transcontinental agreed to acquire Quebecor's entire community newspaper portfolio, including web, mobile and printed formats, as well as regional offices and pre-press hubs located in Rimouski, Saint-Georges and Val-D'Or (the "Proposed Transaction").
Following its review, the Bureau concluded that Transcontinental and Quebecor were each other's closest competitors in the areas where they both owned a community newspaper. In many markets, the Proposed Transaction would result in Transcontinental owning the only community newspaper(s) in those markets, leading to a substantial lessening or prevention of competition in those markets.
To address the Bureau's concerns, the parties entered into a Consent Agreement (the "Agreement"), which required Transcontinental to sell 33 community newspapers. The Agreement did not set a minimum price below which Transcontinental was not obliged to complete a sale. Additionally, the Agreement required Transcontinental to supply distribution and printing services to any purchaser of the divested newspapers for at least an initial period – at trade terms equivalent to those historically provided to those newspapers.
Majority of Newspapers Not Sold
The sale of 14 community newspapers approved by the Bureau includes three traditional weekly newspapers (Le Journal de Saint-Hubert, Rive-Sud Express and L'Écho du Nord) and 11 online format newspapers.
Despite the incentives built into the sale process (i.e., no minimum price and the requirement that Transcontinental provide distribution and printing services to potential purchasers), no buyer was found for a majority of the community newspapers. This is not surprising given the poor economics of the print news media (especially in rural communities), the fact that the circulation areas of many of these papers were small, French-speaking communities as well as the foreign ownership restrictions applicable to print media industry.
Given that no buyer could be found for these community newspapers, Transcontinental was allowed to retain ownership. Not surprisingly, immediately after the Bureau's announcement that the divestiture process had been completed, Transcontinental announced that it would reorganize its weekly newspaper portfolio and as a result, would cease publishing 20 community newspapers and lay-off 80 employees.
Conclusion
This case illustrates the difficulties associated with attempting to effect a divestiture process in a dying industry. While the result in this case was not perfect (in that many papers remained unsold and will be shut down) it is preferable to the alternative – had the Bureau blocked the transaction, Quebecor would have likely wound down all of the community newspapers over time.
For a copy of the Bureau's press release, please click here.
For a copy of Transcontinental's press release, please click here.
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