Here’s what Paul Godfrey gets paid “to satisfy the short-term profit-seeking of U.S. financiers who now control many of the leading originators of news in Canada’s largest communities.” I particularly like the “entertainment expenses.”
Postmedia and the heavy price it pays to survive
Postmedia Network Canada Corp., 35-per-cent owned by the Manhattan-based hedge fund GoldenTree Asset Management, Postmedia’s largest shareholder, was already Canada’s biggest newspaper chain when it announced last October it was buying the Sun Media chain of tabloid dailies and more than 150 other titles from Quebecor Media Inc.
GoldenTree and its fellow hedge-fund investors in Postmedia thrive on acquiring distressed properties on the cheap and milking their remaining assets. GoldenTree took the lead in 2010 in creating the Postmedia agglomeration, which it salvaged from the wreckage of the Asper family’s bankrupt CanWest empire. It put a Canadian face on the largely U.S.-owned Postmedia appointing Paul Godfrey, 75, as its CEO.
One would think that Godfrey’s slash-and-burn tactics at some of Canada’s most important media outlets — the Vancouver Sun, the Calgary Herald, the Ottawa Citizen, the Montreal Gazette, the National Post and many others — in large part to make debt payments to Greentree and Postmedia’s other offshore debt-holders would be of more than slighting public interest. …
But the real story is that a Postmedia, leveraged to the hilt, can still generate just enough cash to further enrich Postmedia’s mostly U.S. absentee owners. And, if meeting the Americans’ demands for payments on the Postmedia debt they hold further impairs Postmedia in its ability to serve Canadian audiences, the Wall Streeters aren’t losing sleep. It’s unlikely that Godfrey’s sleep is overly troubled, either. His pay for running a company that has never turned a profit has jumped 50 per cent, to $1.7 million, plus $180,000 in what Postmedia’s annual reports describe as “entertainment expenses.” …
Postmedia is encumbered with $497.5 million in debt. With total assets of $740.6 million against liabilities of $729.7 million — including its massive, U.S.-held debt — Postmedia’s liquidation value at the end of its latest fiscal year was only $10.9 million. That’s the value of a handful of McDonald’s franchises. …
In truth, there’s little of substance to Godfrey’s strategy beyond cost cutting and asset stripping. …
Media critics have been sanguine about the unprecedented concentration of newspaper ownership at an enlarged Postmedia, even though the Postmedia-Sun deal will leave just four of the leading dailies in English Canada outside of Postmedia.
The media observers say, as Godfrey does, that the “real” threat to a Canadian free press is from Internet search and social-networking giants like Google, Facebook, Twitter and Pinterest, which siphon ad revenue away from traditional media.
But most Internet sites create practically no content, and instead link to journalism created by “traditional” media, which continue to be the principal originators of breaking news and investigative reports. Which means the health of “traditional” media still matters, in a big way. Postmedia’s papers with their depopulated newsrooms run the risk of becoming irrelevant as a bulwark of democracy. Which might not matter all that much except that so many Canadians still rely on them. …
The three leading Postmedia investors — GoldenTree, Silver Point Capital LP of Greenwich, Conn and New York-based FirstMark Capital — have already extracted close to $340 million in interest payments from Postmedia’s leading Canadian newspapers.
Most of the debt they’ve extended to finance Postmedia bears an interest rate of 8 per cent, a very generous return in this era of low interest rates.
Between 2010 and 2019, Postmedia’s outflow of interest payments will appear to total $650 million. … So the profit for the U.S. tycoons is basically locked in, provided Godfrey can keep making those interest payments. And the key to that is cutting Postmedia’s costs beyond the bone. In the looking-glass world of financial engineering, you can profit handsomely from an asset of steadily declining value. That is, from picking the carcass clean.
Does anyone have a problem with that?