David George-Cosh

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A former Ontario Securities Commission enforcement director believes the provincial regulator should investigate a deal that would see Torstar Corp. taken private by a group of investors led by former Fairfax Financial Holdings Ltd. president Paul Rivett after some of the newspaper chain's investors raised concerns the takeover may not be in the best interest of shareholders.

Joseph Groia, a Toronto-based securities lawyer and former OSC director of enforcement who currently represents one of the aggrieved shareholders, told BNN Bloomberg that he is aware of at least three letters signed by Torstar investors that urge the regulator to look into the takeover arrangement between Nordstar Capital LP and the 128-year-old publisher. 

"Do I believe there's grounds for the commission to take a look at this transaction? The answer is an unequivocal yes," Groia said. 

NordStar Capital, a firm led by businessman Jordan Bitove, Rivett and former Ontario premier David Peterson, raised their offer for Torstar over the weekend to 74 cents per share from the original offer of 63 cents per share after a rival proposal surfaced. Nordstar’s sweetened bid won the backing of key, dominant shareholders: a subsidiary of Fairfax Financial Holdings Ltd. and trustees of the Torstar Voting Trust – both of which entered into “hard lock up” pacts to vote in favour of the deal, according to Torstar. 

Groia said that Torstar's owners didn't consider an unsolicited bid from Canadian Modern Media Holdings Inc. that valued the company at 80 cents per share as well as an additional 50 cents per share from contingency payments tied to future asset sales. CMMH is led by Avesdo chief executive officer Tyler Proud and backed by his brother, Dye & Durham Corp. CEO Matthew Proud, as well as former Ontario finance minister Greg Sorbara and Infor Financial Group Inc. CEO Neil Selfe. 

Kate Ballotta, a spokesperson with the OSC, confirmed that the regulator received shareholder complaints in relation to the Torstar bid, but wouldn't provide further comment. 

"This is to ensure the complaint process is not used to affect the market and to promote fairness towards those who are the subject of a complaint or review," Ballotta said in an email to BNN Bloomberg. 

Sorbara, who confirmed to BNN Bloomberg the CMMH offer for Torstar was worth as much as $1.30 a share, said the NordStar deal "does not pass the smell test." 

He added that Fairfax CEO Prem Watsa has an existing relationship with Rivett, who stepped down as president of the financial services firm in February but remains chairman of Fairfax-backed Recipe Unlimited Corp. and Fairfax’s Africa subsidiary, that could be interpreted as a conflict of interest. 

"It's my impression that the relationship between the bidders and the sellers was very close and it's my understanding that the sellers agreed to accept the enhanced Nordstar bid in a way that precluded a higher bid coming in," Sorbara said.      

NordStar wasn't immediately available for comment. Fairfax, which owns about 40 per cent of Torstar’s Class B non-voting shares, didn't return requests for comment. 

Groia said that the OSC has the authority to call a hearing into the dispute ahead of a shareholder vote scheduled for July 21. As well, if regulators determine they don't have enough time to do a proper investigation into the deal, a cease trade order could be applied which would temporarily stop the privatization from going forward, he added. 

"It's hard to understand the [families’] actions," said Groia, who worked at the OSC as associate general counsel and director of enforcement from 1985 to 1990. 

"My experience as a former regulator is any time you can't understand why people are reacting the way they are, the general answer is that there's something motivating them that we don't know about. That's what an investigation is for."

Torstar Chair John Honderich, who is also head of one of the five families that control the company's voting shares, told BNN Bloomberg that there was no formal offer on the table from the CMMH group that was higher than the NordStar proposal when a decision to sell the company was made. 

"Twice on Saturday we urged the other bidder to put its best proposal and in particular to increase the cash component of 72 cents," he said in a phone interview. "They declined to do so." 

Honderich added Torstar received comments from the CMMH group that it would be willing to increase its offer about 80 minutes after the company publicly announced the revised NordStar deal.​

Selfe declined to comment when reached by BNN Bloomberg. 

Juan Carlo Haas, managing director of a German-based investment firm that owns about 300,000 Torstar shares, sent the OSC a letter on July 13 that raised concerns about Rivett's "highly problematic role" in the deal after he "switched sides" from being a Fairfax executive to being a senior executive at NordStar. Groia confirmed he was retained on Wednesday to represent Haas before the OSC. 

"I strongly encourage and urge a detailed investigation in this whole matter by the OSC or other organizations, if necessary and/or possible," Haas wrote in the letter, which was obtained by BNN Bloomberg. 

Honderich said the OSC informed Torstar that "there were no issues" with Rivett's role with NordStar during the deal's negotiations. 

"That's something that they looked into and I was not concerned about it, no," Honderich said.