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The parent companies for the country’s two largest newspaper chains are in merger talks, working on a deal that would slash debt and build a media company better able to compete with digital platforms.

Postmedia Network Canada Corp. Postmedia Network Canada Corp., with 130 properties that include papers in most major Canadian cities, and Toronto Star parent Nordstar Capital LP said Tuesday they are in talks to combine operations. Their proposed union comes at a time when social media giants such as Facebook parent Meta Platforms Inc. and Google owner Alphabet Inc. are threatening to cut payments for news as part of an ongoing battle with the federal government over regulation of the internet.

The two companies would share operating control of the new entity, while existing Postmedia shareholders would own a 56 per cent economic interest and Nordstar would have a 44 per cent stake. Nordstar, controlled by entrepreneur Jordan Bitove, would retain a 65 percent stake in the Toronto Star and remain its publisher.

Mr. Bitove would be chairman of the combined companies, while Andrew MacLeod, chief executive officer of Postmedia, would be its CEO. Postmedia owns the Vancouver Sun and Province newspapers, Edmonton Journal, Calgary Herald and Montreal Gazette. Nordstar’s portfolio includes the Hamilton Spectator and Waterloo Region Record.

“The viability of the newspaper industry in Canada is at an extreme risk, especially in the small towns and communities that are important to this nation,” said Mr. Bitove in a release. “By pooling resources and working collaboratively, we can ensure that more Canadians have access to trusted journalism and quality reporting.”

The two companies made an announcement after the price of Postmedia’s thinly traded stock jumped by 46 percent Tuesday on the Toronto Stock Exchange.

“The core rationale for the proposed merger is to create a new entity with reduced debt, national digital scale to compete with the global technology giants and economies of scale in the business model,” said Mr. Macleod in the release.

Postmedia has $261-million in debt, and lost $36.7-million in the first six months of the year, after losing $26.5-million in the same period a year ago. Over the past six months, the Toronto-based company paid $16.9-million in interest on its loans. In announcing negotiations with Nordstar, Postmedia said: “The merger contemplates a significant reduction in overall debt through a conversion of a portion of the outstanding debt to equity.”

More to come.