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Transcontinental buys 74 Sun Media community papers in Quebec for $75M

MONTREAL - Sun Media is ending a battle in Quebec with media rival Transcontinental by agreeing to sell its 74 publications and related websites for $75 million as it continues to adjust to a loss of advertising revenue caused by the digital revolution.

The agreement announced Thursday has been approved by the boards of both companies but the subsidiary of Quebecor Media (TSX:QBR.B) will continue to operate the papers until the transaction receives regulatory approval, including from the Competition Bureau.

"Advertisers now have a multitude of platforms available to them that did not even exist little more than 10 years ago. We believe in the future of print media but we cannot ignore the new market realities," said Quebecor Media CEO Robert Depatie.

He said the transaction will ensure that the newspapers will stay in the hands of a Quebec company. Not included in the deal are Quebec's largest daily newspaper Le Journal de Montreal, Le Journal de Quebec, the 24 Heures free daily and the QMI news agency.

The deal comes a day after Sun Media announced it was laying off another 200 employees across its network, including 50 journalists outside Quebec.

Transcontinental CEO Francois Olivier said the transaction fits into its strategy of strengthening its core assets and developing a local digital media offering for businesses and communities. He expects the near doubling of its weekly presence in the province will add about $20 million in operating income before amortization.

"There is still a future (in newspapers)," he said in an interview. "These are very local publications. We will probably go more towards unique content to get away from national news."

If approved by regulators, the transaction would add about 600 new employees to the 1,000 who work for Transcontinental in local markets across the province.

Although Transcontinental would become the dominant community newspaper publisher, Olivier said the acquisition doesn't mean the end of some publications that already coexist with regional weeklies.

"We'll take the time to make a market-by-market study. This is not a national matter. It is about doing what is good for each community."

While some publications will be merged, it could result in an increase in the number of pages in some weeklies, he said.

As part of a separate agreement, Quebecor Media said it will print some of its magazines and direct marketing materials with Transcontinental Printing starting in February.

Olivier called the printing deal "historic."

"On the one hand, it shows the relevance of our state-of-the-art printing platform and our ability to help publishers and marketers, and on the other, it demonstrates our ability to change in keeping with the new realities of the local media market," he said in a statement.

Haran Posner of RBC Capital Markets said the addition of Sun Media's weeklies to its own stable of 76 weekly publications "should ease what has been a highly competitive community media environment in Quebec in recent years."

Analyst Aravinda Galappatthige of Canaccord Genuity said the transaction may include some "synergistic" cost savings because of the overlap in newspapers.

Transcontinental (TSX:TCL.A) also announced Thursday that its net losses in the fourth quarter nearly doubled to $92.2 million from $51.9 million a year earlier.

Adjusting for one-time items, Transcontinental earned $58.2 million, down six per cent from $61.9 million a year earlier. Earnings for the period ended Oct. 31 decreased by two cents per share to 75 cents, beating analyst forecasts by one cent.

Revenues fell 3.2 per cent to $566.3 million from $585.1 million.

For the full year, it lost $14.5 million or 19 cents per share, compared to a loss of $183.3 million or $2.27 per share in the prior year. Adjusted profits increased 5.2 per cent to $157.2 million from $149.4 million. They were up 9.2 per cent on a per share basis to $2.02 from $1.85 in fiscal 2012.

Transcontinental's printing division was helped by the acquisition of Quad/Graphics, which helped to offset the loss of the Zellers business and weaker media division results caused by "the soft advertising market." It realized $30 million on cost synergies during the year, and $40 million since the Quad acquisition in March 2012.

During the quarter, printing sector operating profits increased 6.7 per cent to $90.8 million on $390.4 million of revenues. The media segment's earnings dropped 22 per cent to $27.7 million on $196.5 million of revenues, down 4.8 per cent from the prior year.

Transcontinental is Canada's largest printer and a leading media company with magazines, newspapers, books, mass and personalized marketing, mobile applications and door-to-door distribution. It has more than 9,000 employees in Canada and the United States.

On the Toronto Stock Exchange, its shares lost 42 cents or 2.5 per cent at $16.10 in Thursday afternoon trading.

The Canadian Press

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