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More changes for CANOE

On Feb. 11, 2001, Quebecor cut more jobs at CANOE.ca, including most of the tech department, the head of the art department, as well as the vice president of content.

Well, Quebecor boss Pierre Karl Peladeau finally got CANOE to market. By merging CANOE with Netgraphe, the public offering of the Canada's top content site was only 10-months later than expected, and done as a reverse takeover.

Perhaps the most surprising thing about this incestuous merger is the price Quebecor put on CANOE Network.

Based on Netgraphe's (WWW:TSE) share price prior to the announcement, CANOE was worth almost $394.5 million (after the announcement, when Netgraphe's stock plunged almost 25 percent, the valuation remained impressive at $296.7 million). This is remarkably close to the $300-million market valuation for CANOE tossed around by analysts while dot-coms were still bubbling, and eerily similar to the estimated $350-million worth of BCE 's recent acquisition, The Globe and Mail.

When I left CANOE—on good terms—a month ago yesterday, Netgraphe was an ominous presence.

Our general manager, Hugues Simard, had just quit —allegedly battling with Quebecor brass over the details of the Netgraphe-CANOE merger. Rumours swirled that CANOE.ca would be moving from Toronto to Montreal.

Despite my doubts that a move would happen then (or now), there was a shift coming. What ended-up happening was that the focus of power was pulled firmly into la belle province.

This is not necessarily a bad thing. CANOE is again in experienced hands with its prodigal son—ex-general manager, current president and CEO Hugues Simard—heading things up. And CANOE/Netgraphe could now become a big fish in the small, but quickly growing, pond of the french Web.

In English Canada, CANOE.ca faced the bottomless pockets of BCE, Microsoft and Yahoo. Quebecor was unable—or unwillingly—to fight that fight as demonstrated when 30 percent of CANOE's staff was laid-off in August 2000 (still the only content-based site in Canada to slash that dramatically). This is not the case in Quebec.

While focusing on the Quebecois and French audience is admirable, Pierre Karl is taking a number of risks:

  1. his Net strategy still seems to be an e-commerce convergence model, roughly inspired by AOL-Time Warner and Amazon.com
  2. the markets, having been burnt once, are skeptical of anything Internet-related
  3. he could alienate CANOE.ca's core constituency of 177,000 people visiting the site daily
  4. another round of layoffs across the CANOE Network could devastate the already shakey employee morale

CANOE is unique in Canada, and is often overlooked as users head to American-owned sites. The English site is still one of the best presenters of Canadian and international news in the world. If Pierre Karl listens to his employees in the trenches and not the machinations of the market, this deal could work inject a new energy back into CANOE.

Unfortunately, if his past actions are any guide, the market supersedes all.

Craig