TORONTO -- Bidders have begun to emerge for Canada’s biggest newspaper chain as its owner, Canwest Global Communications Corp., and its secured lenders look to sell off the unit or failing that, spin out the division into an independent public company.

Monday, a group led by former senator Jerry Grafstein went public with its interest in bidding for certain portions of Canwest Ltd. Partnership (LP), specifically, The Gazette in Montreal, The Ottawa Citizen and the National Post, which comprise the core assets of the chain in Eastern Canada.

Yet it is unclear if the offer being mulled by the group would even be entertained by Canwest and the group of lenders, led by Bank of Nova Scotia and the country’s four other big commercial banks, who along with dozens of others are owed about $955-million.

“We’ve clearly stated that preference was given to bids for the consolidated publishing group,” said John Douglas, vice-president of public affairs for Canwest, adding that there is “more value in their collective grouping as opposed to individual properties.”

Winnipeg-based Canwest’s newspaper unit filed for creditor protection under the Companies Creditors’ Arrangement Act on Jan. 8 after defaulting on interest payments on about $1.5-billion in debt. Looking to recoup value for its creditors, sources indicated Monday the company is seeking bids of between $1-billion and $1.2-billion.

Mr. Douglas would not divulge Canwest’s asking price, but said a floor has been established and the offer does not contemplate breaking the assets up. “The chain has worked for a number of years to create synergies and cost efficiencies as well as foster the strength of the national buy [for advertisers]. There is nobody who can blanket Canada the way that the Canwest chain can,” he said.

Canwest LP owns and operates The National Post flagship paper as well as 10 metropolitan dailies, 26 community newspapers and various online properties, including canada.com. It took in more than $1.02-billion in revenue for the fiscal year ended Aug. 31, 2009.

Analysts suggest that the advertising presence the chain’s network can offer across platforms and within different markets presents an enviable strategic advantage with advertisers. In addition, breaking it apart would leave certain assets potentially orphaned and lead to a lengthy court process.

“The creditors likely see all the synergies [and] savings that have been realized by combining the papers and how difficult it might be to separate some of the processes... leading to additional expense,” said one analyst who asked not to be identified.

Mr. Grafstein, who has partnered with consultant and former media player Raymond Heard and Beryl Wajsman, the publisher of the bilingual political commentary weekly The Metropolitain, said in a statement the group hopes to have a formal offer together within three weeks.

The partners said they “have received strong financial commitments” from unidentified investors. They claim other investors will be announced in the weeks ahead.

It would not be the first attempted run at certain Canwest newspapers for the former senator. In late summer 2008, he was reported to be after the National Post and other assets as Canwest contemplated a sale to relieve some balance-sheet stress when the first tremors of the economic downturn were rippling across the media sector.

In an interview Monday, Mr. Grafstein said the consortium wants to maintain an “independent voice” at each newspaper, which would be “tightly knit into the community.” That also means local financial backing, he said, adding that the group has the support of investors based in all three markets.

He said he would make the bid details public, including naming his backers, once the group has done its due diligence.

Canwest and its creditors have given would-be bidders seven weeks to express interest. After which, offers will be vetted. Qualified bidders will then be granted access to the division’s data room and have an additional seven weeks to put forth offers.

There are other privately-backed groups rumoured to be in the hunt for the entire chain.

On Jan. 8, Paul Godfrey, president and CEO the National Post, indicated that he was “exploring options.” Mr. Godfrey led a $411-million management buyout of the Toronto Sun Publishing Corp. in 1996 in a deal that proved very lucrative for its backers, including the Ontario Teachers’ Pension Plan.

The Alberta Investment Management Corp. has also shown at least some interest. In an interview last week, Leo de Bever, chief executive of the $70-billion provincial pension fund called the chain a “high-profile asset” adding there was interest among top members within AIMCo’s private-equity arm. “The people in our group are keeping watch,” he said.

AIMCo’s team is led by George Engman, the former head of the Ontario Teachers’ Pension Plan equities portfolio, which for a time owned a sizable portion of community newspaper publisher Osprey. “He’s familiar with the territory,” Mr. de Bever added.

Existing media firms are possible buyers, too. Torstar Corp., the publisher of the Toronto Star newspaper, as well as communications giant Quebecor Inc. have expressed interest. Transcontinental Inc. as well as Glacier Media Inc. are thought to covet some or all the community newspaper assets.

However, unlike private equity, other media firms must navigate ownership and competition laws. Cross ownership rules enforced by the Canadian Radio-televison and Telecommunications Commission to prevent media concentration dictate that firms cannot own more than two outlets across print, radio or broadcast in a single market.

Competition laws also pose a hurdle. Quebecor, which owns the Sun Media chain with dailies in many of the same markets as Canwest, would be forced to sell or merge their existing papers with Canwest’s operations.

However, given the weakened state the industry these days, lawmakers may be open to amending or bending those rules more than ever before. In a recent newspaper report, Pierre Karl Péladeau, Montreal-based Quebecor’s chief executive, said that as media further fragments into a multitude of formats, newspaper concentration may no longer be as much a concern.

One industry analyst that asked for anonymity agreed. “There’s the written law, and then there is what gets approved,” they said. “Media in general is on its heels a bit and I don’t think the government is here to enforce rules to the detriment of the industry.”

Failing a satisfactory offer by the end of the proposed sales process in mid-March, Canwest’s creditors plan to move the chain into a separate enterprise and exchange their debt for fresh equity in a new firm, which would eventually go public.

“The senior secured lenders believe the new company would benefit from a strong competitive advantage with the leading English-language newspaper in each of its markets and a national flagship publication,” Canwest’s creditors said in Jan. 8 statement.

jasturgeon@nationalpost.com