An update on the Torstar-Postmedia investigation

  • November 29, 2019
  • Sean Stephenson

In 2017, Torstar and Postmedia concluded an asset swap of several local newspapers. Shortly after the merger concluded, the Competition Bureau confirmed that it was investigating the deal. This article provides a brief summary of what is publicly known regarding the investigation to date.

The Transaction & the Competition Bureau’s Allegations

On November 27, 2017, Postmedia and Torstar publicly announced the completion of a transaction involving the transfer of 41 community and daily newspapers largely based in eastern and southern Ontario. More specifically, Postmedia transferred ownership of 17 newspapers and their respective digital platforms to Torstar in exchange for 24 newspapers and their respective digital platforms (with the exception of Metro Ottawa and Winnipeg for which only the print publications were transferred). On the same day, Postmedia announced that it would close all of the acquired papers, save for one, and Torstar announced that it would only continue to operate four papers. In total, 36 of the 41 newspapers closed and resulted in the loss of approximately 300 jobs.

In a call slightly before the transaction was publicly announced, Torstar and Postmedia informed the Competition Bureau’s Merger Directorate that the deal was not subject to any pre-merger notification requirements. Despite this notification, the Merger’s Directorate commenced a review of the transaction that same day, looking into whether the deal would result in a substantial lessening or prevention of competition in the sector.

 

Two days later, on November 29, 2017, the bureau’s Cartels Directorate began a separate criminal investigation under section 45 of the Competition Act). The criminal conspiracy investigation focused on whether Torstar and Postmedia, as competing newspaper publishers, had previously discussed and agreed on the specific newspapers that would be transferred, employees that would be terminated, and which paper would operate in specific geographic areas for a set period of time—so as to avoid competition.

Investigation to Date

In response to the investigations, both parties claimed that they had not conspired and had not discussed their plans. Nevertheless, on March 6, 2018, the Commissioner of Competition commenced an inquiry pursuant to section 10 of the Act to determine the facts, and to investigate whether Torstar and Postmedia’s conduct violated article 45 of the Act. This investigation was separate and was conducted in parallel with the competitive effects review by the bureau’s Merger Directorate.

Within days of the Commissioner having initiated the inquiry, Ontario Superior Court granted an application for the search and seizure warrants. Competition Bureau officers conducted searches at the offices of Postmedia, Torstar and Metroland Media Group in the Greater Toronto Area.

On March 12, 2018, the Competition Bureau issued a statement. It confirmed that it was investigating alleged anti-competitive conduct contrary to the conspiracy provisions of the Act and conducting a separate review under the merger provisions.

The bureau announced it was proceeding only with its criminal investigation in November 2018. In an email to media inquiries a spokesperson stated “The Bureau has a range of investigative tools to obtain evidence that are provided under the Competition Act and under the Criminal Code of Canada, including searches, court orders for records or written responses to questions, oral testimony and wiretapping." Further, on December 4, 2018, the Competition Bureau obtained an order from the Ontario Superior Court to advance its investigation, which requires one former and five current employees of Torstar to be interviewed under oath by bureau investigators. Other than these developments there has been little publicly disclosed regarding the investigations, except for procedural developments, including the issuance of a sealing order and motions to address the publishers' privilege claims.

To date, no charges have been laid, and further details of the investigation, which is ongoing, remain confidential.

Going Forward

Once the investigation is completed, the Commissioner will determine whether there is sufficient evidence to prosecute the case.  If the Commissioner believes that there is sufficient evidence, it will refer the matter to the Public Prosecution Service of Canada, which will review and ultimately decide if a prosecution should be initiated.

The bureau's theory of criminal liability remains unclear. The bureau’s analytical framework, as set out in the Competitor Collaboration Guidelines, indicates that the bureau reserves section 45 and the other criminal provisions of the Act for only the most egregious "hard core" cartel conduct or "naked restraints" on competition. Conversely, conduct that can be potentially subject to the ancillary restraints defence under subsection 45(4) will not be investigated criminally under the Competition Collaboration Guidelines. With that context, it is difficult to discern how the conduct at issue, an asset swap likely animated by the typical business considerations at play in a transaction (for example, tax treatment), could be considered contrary to section 45.

It is unclear whether this investigation will proceed to a prosecution. There are few publicly available details regarding the current status of the investigation.

Sean Stephenson is Senior Associate at Dentons Canada LLP.