Dividend cut at Torstar could bring changes to voting structure into play
Faced with weak earnings, newspaper publisher Torstar Corp. on Wednesday suspended its dividend payment until at least late 2020, a move that could precipitate a shift in the balance of power at the company if the payments are not resumed within two years.
Torstar has a dual-class share structure, with voting Class A shares held by the families of the company’s original owners, and non-voting Class B shares available to retail and other outside investors.
But the ownership structure is designed such that if the company misses dividend payments for eight quarters in a row, Class B shares obtain voting rights. With far more Class B shares than Class A shares, such a shift would give Class B holders a major say in important decisions such as who sits on the board.
I think what the board is saying is that it is not necessarily a permanent suspension
The dividend announcement came as the company reported a quarterly loss of $41 million for the period ending Sept. 30, 2019, more than doubling its losses from a year ago, and sending its shares plunging. The Class B shares closed down 29 per cent at 60 cents in Toronto
“Certainly this five quarter time frame between now and then (of not handing out dividend payments) is going to be really helpful to us,” the company’s chief financial officer, Lorenzo DeMarchi, told investors and analysts on a conference call Wednesday morning.
Torstar had been paying a quarterly dividend of 2.5 cents per share for the last three years to both classes of shareholders. Between 2012 and 2015, the company was paying out slightly over 13 cents per share.
“I think what the board is saying is that it is not necessarily a permanent suspension … at least through the end of 2020 no one should anticipate a dividend and then depending on where we are at that point the board will reevaluate again,” DeMarchi said.
Torstar did not respond to a request for comment on the potential consequences of the continued suspension of its dividend payments for more than eight quarters.
The company’s revenue continued to decline as it struggled to offset shrinking print advertising revenue with digital subscriptions and online ads. Operating revenue for the quarter fell 12 per cent to $111.8 million, compared to $126.4 million a year ago.
Torstar’s print and digital subscriptions for the quarter from its 80 daily community publications and three daily publications including the Toronto Star accounted for 27 per cent of total operating revenue for the quarter. Digital advertising revenue for the quarter was just 12 per cent.
Adding to Torstar’s woes this quarter was the underperformance of VerticalScope Inc., a digital publisher that operates hundreds of websites and online forums which Torstar acquired in 2015 for $180 million. Adjusted EBITDA for VerticalScope was down by $0.7 million for the quarter, which management attributed to declines in search-related traffic due to a change in Google’s search algorithm.
VerticalScope had laid off close to 50 employees in 2018, part of cost-cutting measures in light of Google’s algorithm change.
Torstar also disclosed that it would improve its accounting methods with regards to reporting gains or losses from its 56 per cent investment in VerticalScope, after a review by staff of the Corporate Finance Branch of the Ontario Securities Commission.
“We no longer present or discuss operating results of the digital ventures segment separately as the segment without the inclusion of VerticalScope is too small to be considered a reportable segment,” the company said in Wednesday’s earnings statement. Torstar had previously not consolidated VerticalScope’s debt into its balance sheet.
Torstar’s Class A shares are controlled primarily by the Torstar Voting Trust, whose chair John Honderich is also chair of the board of directors and the company’s former president and publisher.
The company was founded in 1958 after the Ontario government barred the provisions in the will of former Toronto Star owner Joseph Atkinson — who wanted to set up a charitable foundation — from being enacted. Since then, Torstar’s governance has been closely guided by six “Atkinson Principles.”