Disputes rage over Hollinger Incorporated, a Cayman Free Press shareholder

Wednesday, January 21, 2004

Conrad M Black, the press baron accused of directing millions of dollars in unauthorised payments to himself and others, has made a deal to sell his controlling interest in a publicly traded Canadian company called Hollinger Inc to a company owned by David and Frederick Barclay, British brothers with their own growing media empire, for about US$178 million. 

Hollinger Inc. owns a 40 percent stake in Cayman Free Press and a 73 percent voting interest in Hollinger International, the publisher of The Daily Telegraph of London, The Chicago Sun-Times and The Jerusalem Post.

The surprise deal with the Barclay brothers is a complex transaction in which they would take control of a privately held company controlled by Lord Black called Ravelston, which in turn owns a 78 percent stake in Hollinger Inc. In addition, the Barclay brothers, through their company, Press Holdings International, are seeking to buy the outstanding shares of Hollinger Inc, valuing the entire company at 423.8 million Canadian dollars or US$325.9 million. The brothers would also take on Hollinger Inc's debt of $181.7 million Canadian dollars.

The sale amounts to an end run around Hollinger International's board orchestrated by Lord Black. The deal with the Barclays was negotiated in secret from the board, further enraging members of the company's special committee, which sued Lord Black on Friday, and of the executive committee, which removed him as non-executive chairman on Saturday, according to executives close to the company. Those same executives said that Hollinger International's lawyers, who had suspected such a deal might be made, were exploring ways to block it on Sunday evening. 

The deal will probably complicate the ability of the Hollinger International board to recover the money it is seeking from Lord Black and its investigation, which is being led by Richard C Breeden, a former chairman of the Securities and Exchange Commission. As reported in Monday's Cayman Net News, the committee investigating alleged financial wrongdoing by Lord Black has been unable to account for dividend payments from Cayman Free Press reportedly amounting to some $1.5 million.

"This is a showdown between Black and Breeden about who is going to walk away with the money," said Laura Jereski, an analyst at the Tweedy, Browne Company, which is a large Hollinger shareholder. Mr Breeden was hired by Hollinger International in November to investigate payments made to company executives and he has made stinging comments about Lord Black's assertion that the payments were authorised by the board. 

On Sunday, in a further escalation of hostilities, Lord Black criticised Hollinger International's board in a letter, saying that the company's suit against him "can only be seen as a desperate attempt to prevent me from completing a transaction for Hollinger Inc. and divert attention from misrepresentations they had made about the non-compete payments in November."

The sale, the lawsuit and Lord Black's removal as non-executive chairman by Hollinger International effectively end his involvement in the newspaper company that he began with the purchase of two Quebec newspapers in the late 1960's and that catapulted him into the ranks of influential, largely conservative politicians and thinkers. Despite the end of his tenure, he defiantly proclaimed: "I do not accept the validity of the executive committee's purported removal of me as chairman of the board, nor most of its other recent initiatives."

In the lawsuit, the company accused Lord Black of misusing "the company coffers" by directing more than $224 million in payments to himself and others that were far greater than the value of any services they performed, among other accusations. 

In a separate statement on Sunday, Lord Black said: "It will be distressing to part from the Telegraph newspapers, The Spectator, the Chicago newspapers and The Jerusalem Post, in particular. But these fine titles must not be hobbled any longer by the current controversies and financial uncertainty. They will be in good and caring hands, and we will be able to focus exclusively on resolving current legal and public relations concerns."

Still, any deal by Lord Black to sell his stake could fall foul of a court order issued on Friday in Chicago at the behest of the SEC. barring any interference with Hollinger International's internal investigation. The SEC said in its lawsuit that corporate insiders had tried "to thwart and obstruct the efforts" of the review. And the agreement between Lord Black and the Barclay brothers includes certain conditions that could permit the brothers to back out if revelations of financial impropriety were discovered at Hollinger Inc.

It is unclear if or how Hollinger International's board or the SEC could block the transaction because the deal between Lord Black and the Barclay brothers is for Hollinger Inc. and Ravelston, which are both based in Toronto and under the jurisdiction of Canadian regulators. 

Hollinger International said that "The company and the board intend to review the offer for Hollinger Inc. and its implications for Hollinger International."

Back...