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Transcontinental will try to sell 34 newspapers for approval in Sun Media deal

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Transcontinental Inc. is looking to sell nearly three dozen community newspapers in Quebec to fulfil a condition it made with Canada's competition regulator for approval to acquire 74 publications from Sun Media Corp.

Under the terms of the agreement Wednesday, the printing company will try to draw buyers by listing 34 weekly newspapers and accompanying websites for a 60-day period.

The newspapers, which will offered up at no minimum price, will also come with a deal requiring Transcontinental to provide distribution and printing to the new owner, by request, for a specific period.

If no buyers come forward following the two-month period, the company will be able to keep the newspapers.

Transcontinental (TSX:TCL.A) said the sale process is being handled by a third-party chartered accountant firm, Mallette LLP.

The Competition Bureau said listing the newspapers will help preserve advertising competition in the small Quebec communities where the publications and their websites are located and will allow a third party to buy and operate them independently "to the benefit of both readers and advertisers."

"The Bureau understands that many communities are concerned and do not want to lose their local newspaper," the regulator said in a statement.

"As many newspapers are in financial distress owing to the ongoing transformation of the community newspaper industry, the Bureau's consent agreement seeks to maintain competition in local markets through a sale process in regions where the parties strongly compete against one another."

Twenty-two of the publications for sale are owned by Sun Media and located in small cities such as Shawinigan, Trois Rivieres, and Drummondville. The remaining 12 are already owned by Transcontinental, and located in Longueuil, Mont-Tremblant and Chambly.

"We are pleased with this decision, which allows us to close the transaction and combine the strengths of both companies," Francois Olivier, Transcontinental's president and chief executive said in a statement.

"We are enthusiastic that we will soon be able to welcome the employees of the Sun Media weekly newspapers in Quebec."

Last December, Transcontinental announced a deal to buy 74 publications and related websites from Sun Media, a subsidiary of media and telecom parent Quebecor Inc. (TSX:QBR.B), for $75 million.

Now, with the go-ahead from the regulator, Transcontinental said the deal is expected to be finalized over the next few days.

The printing company, which operates media and a flyer business, said even if it sold all 34 publications, it still expects the acquisition to add $20 million to its operating earnings.

RBC Capital Markets analyst Haran Posner said most of the papers named for sale were launched in recent years, and "likely have very limited profitability considering the state of the newspaper industry."

Posner added that it was unlikely for a publisher outside Quebec to buy a large portion of the publications and instead, expected the newspapers to be sold to smaller independent publishers within the province.

"Once the sale period has expired, TCL (Transcontinental) will review its remaining portfolio, at which point we expect the company will combine some newspaper brands in certain markets," Posner said in a research note.

The approval of the sale allows Quebecor to focus on its wireless business in Quebec, said Canaccord Genuity analyst Dvai Ghose in a note.

"More importantly, we believe that divesting from what we consider a legacy asset is a strategic positive and we hope to see further newspaper sales from QMI (Quebecor)," he wrote. "We expect QMI to use proceeds from this sale for debt deleveraging."

Quebecor Media still operates Quebec's largest daily newspaper Le Journal de Montreal, Le Journal de Quebec, the 24 Heures free daily and the QMI news agency.

Transcontinental publishes more than 30 magazines including Canadian Living and Elle Canada, as well as books and flyers. It also has a network of community newspapers in the Atlantic provinces and online portals such as AutoGo.ca and JobGo.ca, and is the owner of the Metro weekday daily in Montreal and co-owner of Metro Halifax.

Follow @LindaNguyenTO on Twitter.

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