Postmedia seeking easier rules on foreign ownership

Back from a long Christmas break.

Postmedia has hired a lobbyist who will argue for easier rules on foreign ownership. Income tax laws don’t allow advertisers to deduct advertising costs unless the owners of newspapers are Canadian. Apparently Postmedia is looking for foreign investment simply because it can’t find Canadian investors. Torstar has long been rumored as an investor but if it did it would kill the National Post, which is a competitor.

From Jan. 10 2012 Globe and Mail

The publisher of Canada’s largest chain of newspapers is lobbying Ottawa to allow more foreign investment in the newspaper industry, a move that would have significant implications for the sector if it were successful.

Lobbyist David Angus of the Ottawa firm Capital Hill Group Inc. filed a new registration last month listing Postmedia Network Canada Corp. as a client. The document says Mr. Angus will work on behalf of Postmedia in “seeking to allow foreign investment in Canadian newspapers,” according to the public registry of lobbyists.

Ottawa’s foreign investment rules for the telecommunications industry have generated plenty of headlines since the government announced in its Throne Speech in March, 2010, that it would seek to open the sector to more foreign ownership. By comparison, there has been little discussion about the rules for owning newspapers.

But Postmedia, which publishes the National Post as well as urban daily newspapers, including the Calgary Herald and the Ottawa Citizen, is in the position of needing to find a committed owner in a difficult environment for print media.

The company’s current investors, led by New York-based Golden Tree Asset Management LP and other funds, are expected to want to sell their stakes in the company within the next few years. Some, such as RBC Dominion Securities Inc. analyst Drew McReynolds, have speculated that Torstar Corp. could be a potential buyer.

But others are not confident a Canadian buyer will emerge offering the right price.

“The only way [chief executive officer Paul Godfrey] is going to get something out of this is if the company gets bought out. And I can’t think of another company that would pay a premium in Canada,” said one media analyst, speaking on condition of anonymity. “It would have to be a foreign plan.”

Executives from Postmedia were not available for comment on Monday. Mr. Angus did not return calls requesting a comment.

Foreign investment in Canadian newspapers is not banned outright, but tax laws make Canada a hostile market for would-be foreign owners. That’s because the advertisers that keep newspapers afloat cannot deduct their spending on print ads for tax purposes, unless a newspaper’s owner qualifies as Canadian, under the Income Tax Act.

Currently, Postmedia has found a way around issues of foreign ownership with the dual-share structure of its stock, which keeps voting control of the company in Canadian hands.

If Postmedia were exploring the possibility of being foreign-owned, however, those tax restrictions would be front of mind in its lobbying efforts in Ottawa. The only other restriction is that, under the Investment Canada Act, any investment by a non-Canadian in the newspaper sector would trigger a review by the Minister of Heritage as to whether it would be of “net benefit” to Canada – assuming the asset is worth $5-million or more.

Mr. Angus’s registration listed Canadian Heritage, Industry Canada, the Prime Minister’s Office and the Privy Council Office as the federal departments he intends to communicate with on Postmedia’s behalf.

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