Some events in business come as a shock. Canwest’s move to put its newspaper division into bankruptcy protection wasn’t one of them. Last week, the company obtained creditor protection for its chain of papers (excluding the National Post, which was part of an earlier filing) and began the hunt for a buyer. But the real surprise could come if Ottawa finally allows foreign investors to snap up the Canwest papers.
The Harper government has already dramatically rewritten Canada’s foreign ownership restrictions in the telecom sector. In November, it overruled regulators and allowed Egyptian-owned Globalive to enter the wireless market. “The door on foreign ownership has been opened a crack,” says Vincent Mosco, a professor of cultural studies at Queen’s University.
There are differences between the newspaper and wireless sectors. Newspaper ownership is controlled through the Income Tax Act, meant to bar non-Canadians from controlling more than 25 per cent of a newspaper. But it’s likely Ottawa is facing pressure from Canwest’s creditors to rethink those rules. The company’s creditors, including Scotiabank, have agreed to buy the papers for $950 million, unless a higher bid can be found. (Canwest hopes to fetch $1.5 billion.) The problem is the tiny Canadian market limits the number of potential buyers willing to gamble on the struggling industry.
If a Canadian does come forward with a foreign backer with a higher tolerance for risk, Mosco says the government might strike a balance by imposing Canadian content and employment requirements. “This may be a case where ultimately some kind of modification needs to be made to bring in serious American, European or British money.” Given the dire state of the newspaper business, Ottawa may have no other choice. M