UPDATE 1-Transcontinental must sell some papers in Quebecor deal

Wed May 28, 2014 12:55pm EDT

(Changes dateline to TORONTO from OTTAWA, adds background on papers and revenue, analysts' comments, share reaction, byline)

By Alastair Sharp

TORONTO May 28 (Reuters) - Transcontinental Inc will have to sell 34 community newspapers to complete a deal to buy 74 Quebecor Inc Sun Media weeklies, Canada's Competition Bureau said in approving the transaction on Wednesday.

The two companies said in December that Transcontinental would buy the papers from Quebecor for C$75 million ($69 million), subject to regulatory approval.

Quebecor, owner of the Sun newspaper chain, is moving away from print operations in favor of growing wireless and Internet services. The newspapers being sold, which include 22 Sun Media titles, are weeklies in smaller communities across the largely French-speaking province of Quebec.

Transcontinental in some cases would have become the owner of two competing community newspapers in a given region, the competition watchdog said.

"In each regional market where the Bureau found that the transaction could potentially result in a substantial lessening or prevention of competition for advertising space in community newspapers, the Consent Agreement requires that at least one newspaper be offered for sale," the agency said.

Transcontinental has 60 days to find a buyer for the papers, many of which only launched in recent years.

RBC Capital Markets analyst Haran Posner said buyers probably will be smaller independents in the province rather than large national or foreign publishers.

Transcontinental said even after the sale of 34 newspapers the deal should add some C$20 million to the company's operating earnings.

The approval means Quebecor can focus on its growing wireless business, and whether it wants to expand it outside of its home province of Quebec, Canaccord Genuity analyst Dvai Ghose wrote in a note to clients.

He added that "divesting from what we consider a legacy asset is a strategic positive and we hope to see further newspaper sales" from Quebecor.

Recently Quebecor discontinued door-to-door distribution of flyers. News media accounts for less than one-fifth of Quebecor's overall revenue, according to Thomson Reuters data.

Quebecor bought wireless spectrum across much of the country in an auction earlier this year, but has been circumspect about whether it will move quickly to build a national operation.

Transcontinental's shares slid 1.1 percent to C$14.89 on the Toronto Stock Exchange by midday. Quebecor's most-traded non-voting stock was up 0.6 percent at C$26.66.

($1 = 1.0864 Canadian Dollars) (Reporting by Alastair Sharp in Toronto; Additional reporting by Randall Palmer in Ottawa; Editing by James Dalgleish and Jan Paschal)

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