THE THICK GLOOM HAD LIFTED and Christmas and New Year’s Eve 2004 were far more agreeable occasions than those of the preceding year. Now there was an apparently competent team of counsel and other advisers, a plan of action, visible progress, the rejection of the RICO claim, and a year of implacable endurance to strengthen the soul and temper the steel. Barbara and I even managed modest gifts, accepted almost furtively by her, lest the boot in her sky notice we were having a good moment – something we had judged inappropriate in the hair-shirted, Dickensian bleakness of December 2003.
And although there had been terrible stresses at times in the preceding fourteen months, and indeed on many occasions throughout the twenty-six years since I had taken over Argus Corporation, the structure of assets I had built and enough of the corporate associations in which I had invested such effort had held. Financial ruin had receded as a prospect. It had only been a year before that I had had to borrow money from Nelson Peltz to pay our public relations firm, which was swimming like spawning salmon upstream against a raging torrent of hostile press attention.
Yet I was still strategically on a back foot. The lawyer engaged by Strosberg to advise on honouring the Hollinger Inc. indemnity for legal fees effectively suggested that none of our legal fees could be covered by the indemnity in respect of these accounts. Even the imposter regime at Hollinger International, in all its malice, managed better than this. It was paying half our bills.
Gordon Walker devised other methods for aggravating me. He never ceased to tell the press, especially the Globe and Mail, that he was the “new broom,” sweeping the corruption of the former regime away. He hired a public relations firm to peddle his nonsense about a “suite of corporate governance reforms,” which he had printed up in a self-righteous little pamphlet, at the shareholders’ expense.
It was all part of Walker’s effort to let everyone know that there would be no privatization, despite the lip service he gave it. His unctuous homilies to the press were exceedingly irritating, but they had the value of helping to lower the noise level. Walker, monotonous and repetitive, was a providential anesthetist.
We had to have independent valuators and Griffiths McBurney & Partners had been retained as a respected merchant bank that would carry weight with the Ontario Securities Commission as valuators of Hollinger Inc. shares. The senior partner, Gene McBurney, a capable and likeable man, despite his supportive stance and comments, soon urged a delay in the valuation. He, too, wanted to await the chimera of quarterly reports of 2004 from Hollinger International, the progress of the inspector, Ernst & Young, and so on.
It was the Bain-Cerberus syndrome all over again. McBurney was showing a level of caution that he ought to have known would push our privatization over the end-of-March deadline. Hollinger International would take its time filing, in part to inflict as much inconvenience on us as possible and in part to enable Breeden to squeeze as much for himself as he could out of his rich feathered bed as special monitor. Ernst & Young simply demanded more and more and more and claimed the need for unlimited time and money.
At this point every possible faction was in feverish and fluid negotiation. Walker was a partisan of pre-emptive concessions to the SEC and Hollinger International. He and Carroll made a Chamberlain-style visit to Thompson and Paris in December that was a fiasco. The Hollinger Inc. lawyer in SEC matters, Nate Eimer, was a compulsive optimist and instinctive author of compromise. He was seeking a voting trust.
We warned Walker that any attempt to settle without full consultation with the controlling shareholder or to institute the infamous executive committee that had been conceived after the Campbell decision and modelled on the Hollinger International Corporate Review Committee would lead to immediate injunctive action. We won those battles.
Hollinger International finally brought out its 2003 annual statement in mid-January 2005 with minimal changes and restatements despite fiendish efforts to detect fraud, causing a good deal of comment that it had hardly been worth waiting for. The interventions of Williams & Connolly and Eddie Greenspan had cleaned up the text by about 20 per cent, but it remained a stated risk factor that I might regain control of the company and disserve the shareholders.
The stock price was a levitation; the Strine-Breeden-Paris-Zachary-Seitz claim of what could be achieved by the Strategic Process had been exposed as very inflated. The initial Wasserstein summary of Hollinger International as being worth from $18 to $24 a share had dwindled by the end of January 2005 down to below $17. Those to whom we sold in June to refinance Hollinger Inc. had taken a loss on their shares. Those who remained would lose everything.
Seeing that there was no chance of getting out their filings in order to be current before May or June 2005, the Hollinger International rump decided on another special dividend of $3 a share to buy them a bit of time with investors getting restless about the stalling of the grand strategic process. Hollinger Inc., which I had been widely advised through the autumn to put into creditor protection, as Peter Atkinson and the Torys law firm and Strosberg had advocated, would as a result of this dividend now have more than US$100 million in the till. The end of its financial crisis had come, or should have.
Barbara and I went to Donald Trump and Melania Knauss’s wedding in Palm Beach on January 22, 2005. Trump had been an unfailing and vocal supporter of ours through these difficult times. Former U.S. president Bill Clinton, also a guest, urged me not to give an inch to my legal tormentors. The same message was delivered even more forcefully by Rudy Giuliani. At times like this, when many so-called friends, some of fifty years or more, had gone missing, such gestures by such well-travelled people were appreciated. Barbara began humming “Little Things Mean a Lot,” which was part of her vast repertoire of Hit Parade songs from the 1950s. They did.
I NOW HAD TOO GREAT A PROPORTION of assets in residential property. I did not wish to sell any of my houses; they were fortresses of the life that I had built, and I wished them all to continue into the new and stronger position that would arise from the shambles of my former life. But I did not have an unlimitedly optimistic view of the economy, and I had no banking relationships whatever and needed the cash.
Finally, an offer arrived on our London house. It was a fairly full offer, and at more than £13 million, a heavy profit on what I had invested in it. This should be the end of the personal financial problem. Now I could certainly stay the course to crush out the Walker-Carroll-Kelly insurrection and ride on to the American share takeout and SEC settlement. I didn’t want to sell the house, but Barbara had never liked it. The house was in a location she loved (near Kensington Gardens, where she often walked), but it was too large and didn’t have a sit-in kitchen, something she apparently liked. She had retreated to living almost solely in her light-filled dressing room and in her top-floor workroom, which overlooked roofs and gardens and was equipped with a refrigerator, microwave, and kettle to keep everyone at bay. The house was hideously expensive to operate and had become symbolic of a life that was over. It was time for a new, but not an inferior, start.
Negotiations over selling the house, always a laborious business under British rules, toed and froed through January and February as we inched tortuously through the minefield Walker and Carroll and their counsel laid on the path to privatization – and as we sparred with the SEC.
Walker had asked Paris for terms of settlement with Hollinger International and Hollinger Inc. to end the cross-litigation between the companies. When settlement terms were made public in February, Paris – true to form and luxuriating in his flush pay packet ($17,000 a day), which aroused protest even from Jereski, responded to Walker that a $175 million payoff from Inc. to International might do it. Walker showed no recognition of what I had been dealing with from these people; he thought it was just “two dogs sniffing each other.” Part of the metaphor was accurate but unflattering to canines; Paris was lifting his leg, not advancing his snout (though he was pretty agile at that also).
Walker and Carroll sought a settlement with the SEC for Hollinger Inc. Nate Eimer came eagerly to Toronto to sell his settlement in mid-February. The terms were ostensibly improved to the point that if Hollinger Inc. would merely give back the so-called improperly authorized non-competition payments received from Hollinger International in 2000 (which it had done with my money) even if it won the appeal about them in Delaware, the SEC would ask no penalty and would agree to an overseer. This overseer would only vote Hollinger Inc.’s Hollinger International shares on certain major issues, and even then only on instructions from the Hollinger Inc. board. Apart from that, and from retention of the Special Committee directors, we could repossess control of Hollinger International without bringing Breeden down on the company as a special monitor. On this basis we were prepared to accede.
Less than a week after a perfectly agreeable dinner meeting with various Canadian and American lawyers in Toronto, the SEC was reserving to itself the right to impose Breeden as special monitor whenever it chose, for imprecise reasons. The special monitor would not be confined to conserving assets and preserving the status of the Special Committee; he would be largely controlling, at least negatively, every managerial act. It was a surrealistic horror watching all these factions jockeying to destroy companies I had worked thirty-five years to build.
On the privatization front, the Ontario Securities Commission staff, with admirable flexibility and regard to the shareholders’ interest, was now adjusting to the retreat of valuator Griffiths McBurney. At the same time, the Walker-Carroll-Kelly axis, having leaked to the newspapers their belief and determination that “privatization was dead,” were startled to discover that the OSC would grant us the exemptions necessary to provide a litigation trust for anything material turned up by the Ernst & Young process. Their entire tactic, of endlessly repeating that the Ernst & Young inspection would have to be substantially completed before the privatization could take place, was blown up, and they scrambled from that trench to the rear, to a much less commodious foxhole of trying to perpetuate themselves in a litigation committee that would have an unfettered right to commence litigation on any subject at our expense.
The OSC sensibly concluded that the overarching issue was to give the minority shareholders an exit strategy. No one was impressed with Walker’s efforts to pour cold water on the prospect of an offer in one of his garrulous deflationary monologues to the Wall Street Journal on February 19. The Ernst & Young inspection generated yet more fees, as it received herniating masses of material but endlessly went whining back to court claiming a requirement for more information. It was always implied that any reticence about the unlimited continuation of their $40,000 per day extravaganza would be represented as a coverup. After Campbell had created this monster, and was pathetically incapable of imposing any bounds on its appetite, we had no choice but to tolerate its existence and to comply.
The capable and congenial Gene McBurney solemnly emphasized his difficulties in completing the valuation. He raised his fee in accordance, while protesting in all directions that he was “not a fee-grabber.”
ON FEBRUARY 7 WALKER CONVENED a meeting with various legal and financial advisers but specifically excluded Hollinger Inc.’s counsel Avi Greenspoon, the only person who had been negotiating on the company’s behalf with the Ontario Securities Commission.
The meeting predictably produced the result Walker had sought and scripted: privatization within the indicated timelines was impossible. This would ensure that our financing would lapse and the whole plan would crumble.
The next day, I met with Metcalfe and Wakefield, and their privatization committee counsel. They delivered the Walker message, which I rejected. I demanded a new meeting that would include Greenspoon. Bob Metcalfe and the others, who were doing their best to deal with the Walker-Kelly obstructiveness, agreed, and it was scheduled for the next day.
I said that the OSC had accepted that the deal was desirable and that the March 31 date was critical. The noteholders had watched their collateral shrink as special dividends poured out of Hollinger International, reducing the value of the company’s shares. The noteholders had agreed to an arrangement that included issuing more of their high-yield notes to a Hollinger Inc. with full-priced Hollinger International shares in its hands, not with shares diminished in value by special dividends from the sale of the company’s principal asset. They were understandably unenthused about our method of paying them with money that reduced the value of their collateral and would not grant any extension, as they did not wish to be bought out with the specially dividended money. It was March 31 or never.
That evening, Peter White and I attended a meeting of the Commanderie de Bordeaux, a wine-tasting group that numbered Gordon Walker among its members. I had to duck out of dinner to take the usual medley of calls rearranging what had been agreed upon, and telephoned Gene McBurney to tell him what the real purpose of the previous day’s meeting had been, and that the following day’s meeting would include Greenspoon. When I returned to the dinner, it had largely broken up, but White had arranged for a triangular talk with Walker, who, mellowed with good wine and the advent of his choreographed burial scene of privatization the day before, was at his most nauseating. With that political reflex for pseudo-collegialization of responsibility, he averred that “the best minds” had determined that privatization would not be possible by March 31.
On February 9, Avi Greenspoon opened the reconstituted meeting with a factual summary of discussions with the OSC. Walker and Kelly said nothing. Their silence was telling. The March 31 target was redesignated as desirable and potentially attainable. A shareholders meeting was tentatively called for March 31.
The infighting and backbiting intensified steadily as the deadline closed in. It was slow, grudging, inching winter warfare. Most of the players were naturally placatory people. At every stage, there was foot-dragging. The Ernst & Young counsel, echoing the Walker spirit, persuaded the directors to seek a court date with Campbell to consider the feasibility of the March 31 deadline.
Walker played his last card. He effectively transformed this court appearance into a request for “guidance” on whether the directors should proceed with the privatization before the inspection had finished. He presented an affidavit, supported by four attachments. These were innocuous, if sharply formulated, emails by me to Hollinger Inc. directors Paul Carroll and himself and Don Vale. In the emails to Walker, I accused him of trying to run out the clock on privatization in order to “perpetuate your sinecure.” I also accused him of trying to propagate the theory that I was a notoriously odious character, ineligible because of my turpitude to have any influence on or even knowledge of a company of which I was the controlling shareholder. Kelly cited these emails as evidence of my tendency to bully and threaten directors because I had stated in two of the emails that if the directors “botched” privatization, the shareholders would rise from their “torpor” and hold the directors legally accountable.
Walker’s affidavit supported the outrageous demand for a “retention bonus” if the directors remained on the board; a directors’ severance if they were removed after privatization; a segregated escrow fund to ensure their welfare and legal costs, and other insulation against the wrath of any shareholder, me in particular. It was a document of stupefying gluttony. As usual, there was wholly inadequate support for the relief they were seeking. The motion was filed on February 25. Walker had collected $97,000 in January 2005 alone, and all of them were at a running rate of more than $1 million a year. I asked our public relations adviser, Jim Badenhausen, to work with this. After a few days, Bloomberg ran with the story and it cracked open, exposing the white knights of the north as money-grubbing ciphers. Walker’s affidavit stated that they would all have to restart their “consulting businesses,” a confession that none of them had any business. These were the replacements for whom Campbell in his commercial acumen and judicial wisdom had turfed out qualified and blameless directors.
Everything came to a climax on the last weekend before the court hearing, on March 7. The judge had agreed that it was quite in order to begin printing the circular on Saturday evening, March 5. Kelly misled Avi Greenspoon and Steve Halperin about this, causing Avi to impose upon the Ontario Securities Commission to grant a compression of delays and to wring the same concession from all other securities regulators in Canada, including the Yukon. This was nonsense; the judge was happy for us to print on Sunday.
On Friday, February 25, as Walker’s motion was filed, I found Paul Carroll in the library of our office looking at old minute books and trying to find backing for the $200 million lawsuit he, Walker, and Kelly claimed they would take on behalf of the Hollinger Inc. shareholders against my associates and me. Like the lowliest of jackals after the sleeker (American) beasts had weakened us with their savage attacks, they came snapping at our heels very late. I resisted, with difficulty, the temptation to eject him from our office.
Peter White and I met with the privatization committee on Friday, March 4. We reached agreement fairly effortlessly on all points, shook hands warmly, and celebrated our community of view. Having been around this track so often, I knew better than to take it altogether seriously. We agreed that we would raise the offer price from $7.25 to $7.60, just above the range GMP Securities, our valuator, had produced. Metcalfe and Wakefield would recommend to the directors that the offer be sent to the shareholders. They would guarantee a majority of directors in favour of doing so, and this would be announced in court on the following Monday. We compromised on an excessive but manageable fund for the litigation committee and to indemnify the directors against lawsuits ($5 million each, outrageous, of course, but sustainable because only we would wish to sue them once the public shareholders had been bought out). As predicted, after they met with counsel and reconvened, the arrangements had started to evolve. We finally agreed, apparently durably, on every material point late in the evening. I sent them a letter incorporating all we had agreed at about ten o’clock. Our informants sent us a fair traffic in copies of the internecine independent directors’ emails through the weekend.
ON SATURDAY EVENING, in a piquant intermission, Peter and I went to St. Catharines, Ontario, and I gave an address in a winery to a graduating corporate governance class. It was a pleasant interlude with an interesting and convivial group who warmly received my analysis of the Sarbanes-Oxley Act. Corporate governance had reached a point of self-inflicted absurdity. To say that Sarbanes-Oxley was draconian would be to under estimate Draco’s respect for individual liberty. My host crowned an unusually diverting few hours by singing his thanks to me in a five-minute composition of his own devising and bellowing the last verses melodiously as I signed complimentary copies of my Roosevelt book for the guests.
All went well in court on Monday. When Tony Kelly said for the third time that I had held a gun to the head of the independent directors with the March 31 date, Alan Mark replied that that date was agreed by everyone and not imposed.
Alan Mark added that it was nonsense for the directors to ask the court for both a retention bonus and massive severance packages. He pointed out that the directors had awarded themselves $1 million a year, a greater sum than had ever been accorded to any non-executive directors in history in any company, and that they had not bothered to come to the court to authorize it. For once Campbell did the sensible thing and refused to rule in any of it, pointing out that the directors were paying themselves “big bucks” and that they should do their jobs.
It shortly became obvious that Breeden had made a classic mistake, one that Machiavelli, in particular, had warned against: excessive reliance on mercenaries. Walker and Kelly had placed all their trust in the endlessly repeated rosarian mantra that the judge would not allow privatization to proceed before Ernst & Young’s mighty fee-generating inspection ended. (An inspection, I now assumed, that could not end before requiring DNA evidence on my exhumed grandparents and interviews with our personnel in Central America.)
The only positive aspect I could see in Walker and his crew was that they certainly had their price and were not shy about naming it. They initially demanded $1.8 million each for quitting as directors. They had been directors for less than a year. We were able to reply rather robustly that they had no moral credibility at all, having been exposed as raping the company for a historic fee. Finally, reluctantly, Peter White and I agreed to $600,000 each. Metcalfe, Vale, and Wakefield at least had earned something significant if they did the necessary to bring privatization through.
When Walker and Carroll hastily packed their saddlebags with their plentiful gains and rode into the sunset, their overloaded steeds belly to the ground and feeling the whip, Breeden was left with no faction to represent him in the endgame in Toronto. The Ontario Securities Commission staff had been unfailingly cordial through months of co-ordinated effort to design an offer that would enjoy their support. And while they had been thorough to a point beyond any normal privatization effort – indeed should not even have been involved in granting permission for it – we had responded to their requests, which, though taxing, were all legitimate and not simply pettifogging.
The ground quickly began displaying unsightly cracks. The OSC staff suggested that we might like to ask for a public hearing into our proposed going-private transaction. Our sources advised us that Breeden had been in Toronto a couple of days before, lobbying the OSC. The enforcement branch of the OSC gave notice of their own intention to call public hearings on whether a raft of copycat SEC-like allegations should be launched against David Radler, Jack Boultbee, Peter Atkinson (despite all his concessions), Hollinger Inc., and me. They gave so short a time for reply that it was obvious they did not want discussion of this between us but just wanted to get it out into the public that they would be holding such a hearing before the determination of our offer.
Another initiative, of which the timing was very suspect, was the revelation by the assistant U.S. attorney in Chicago, Robert Kent, that he was intervening in the discovery process with the SEC to try to withhold one document that the SEC was about to hand over to us under court order. Kent stated that it could compromise a criminal investigation he was conducting into several of my associates and me. This was a tainting gesture, though it had been widely rumoured since the problems arose that such an investigation was in progress. Objectively, if the retention of one document for several months was all Kent wanted and all he would deliver for Breeden after seventeen months of poring over these matters, it wasn’t too worrisome. Greg Craig and I wrote up a two-sentence press statement concluding that we’d “welcome any fair-minded investigation.
I WANTED MY ORDEAL AND BARBARA’S, for which I was responsible also, to be seen as a triumph of principle. Such a victory could redeem almost any agony.
As if there were not enough public discussion of my condition, a Florida business publication revealed that my Florida house had been the subject of a lien, for about a quarter of its value, by the Canada Revenue Agency. The world press leapt on this, claiming a “mortgage” had been “slapped” on the house, thus implying imminent seizure. This came at the same time as the cries of joy at my potential criminal status, which Murdoch’s London Times and New York Post happily reported could lead to my imprisonment for twenty-five years. Christopher Browne told the Guardian that whether I lived in Palm Beach or the Danbury Correctional Prison was of no interest to him. Nor should it be, but why was this newsworthy? The Guardian had also thoughtfully published advice to Barbara on how to get by in poverty, such as by drawing vertical lines on her legs to imply that she could still afford stockings or tights. Nothing was too low for these base mutations of a free press. A talkative spokesperson for Canada Revenue helpfully told Bloomberg that this was a step the agency took when large amounts were owing by people whom the agency thought it might have trouble collecting from.
This was misleading with respect to my case, as well as outrageously indiscreet. I had volunteered this arrangement, transitorily, until something could be set up in Canada. And I was quite satisfied that Canada Revenue would never be adjudged to be entitled to the claim in question (nor was it). I was accustomed to negative publicity, but this was another flood of it.
At the same time, the OSC privately assured us at several levels that if we were to ask for a public hearing on the technical question of whether the consolidation we were planning was a trade, they would ensure that the staff would stand fast behind their existing recommendation in favour of our application. If we had refused, they would have invoked the public-interest umbrella criterion and called such a hearing anyway, under less promising auspices than what they were now offering. So, we agreed. The OSC hearing was called for March 21 to determine standing to appear and March 23 and 24 for substantive discussion of the issues.
Eddie Greenspan and I wrote out a press release expressing concern about the timing and motives of bringing this forward so quickly and on such a tight schedule to the privatization deadline, although the OSC had had all the material for these matters for seventeen months. We referred to the recent hitherto secret visit of Breeden and warned the OSC against seeming to be a cat’s-paw of such an odious figure.
On Saturday evening, March 19, the commission revealed that the staff recommendation, including the enforcement section, was in favour of our application. At least they seemed to be keeping the real public interest, the rights of the minority shareholders, uppermost in mind and we were encouraged.
If the United States is plagued by a strict corporate governance regime that lends itself to the aggressive tactics of the likes of Christopher Browne and Richard Breeden, then flaccid, anti-Darwinian Canada, the victims’ paradise, must always have something for everyone. This was the spirit of Campbell’s fatuous “win-win” propounded to Jack Boultbee’s lawyer as he hung the glorious albatross of the Ernst & Young inspection on us. (Yes, a “win-win” – a win for Ernst and a win for Young.) This seemed to be the spirit of the OSC having the staff so thoroughly vet every detail of the offer and approve it, then as Breeden’s influence metastasized, making its gesture against me with these unusual public hearings. I was being whipsawed between the most infelicitous aspects of the systems of both countries.
Terence Corcoran in the National Post took up the case on March 22 and warned the OSC not to become a dupe of Breeden. The OSC was notoriously subject to influence from the Toronto financial press, and the Globe and Mail could be relied on, as always, to do everything possible to disrupt anything I was seeking to achieve (as it did with the CanWest sale and the peerage). The pressure rose steadily as we headed into the week of the OSC hearings. Jacquie McNish, co-author of her one-sided, school-snitch squeal of a book about these events, moved to protect her version of them through an interview with Breeden.
Breeden garrulously revealed that he had indeed called on the OSC to “lecture” it on the necessity of not allowing the Hollinger Inc. minority shareholders to vote on our offer because it might facilitate my return to Hollinger International. In this interview, as he had in a so-called statement of fact and law filed with the commission by Hollinger International on March 18, Breeden effectively stated that it was the OSC’s duty to prevent shareholders from deciding for themselves what they wanted.
McNish followed up with an editorial comment attacking the OSC for even considering allowing our proposal to proceed. The OSC was, I thought, squarely on the horns of a dilemma. Either they would have to prostrate themselves at Breeden’s and the SEC’s feet and deny the shareholders what they were seeking or they would have to defend the rights of the shareholders and send the Americans packing. We had aligned our interest so closely with that of the minority shareholders, it was going to be very difficult to discomfit me without showering collateral damage on the public shareholders, whose protection was the commission’s chief raison d’être.
The main hearings on March 23 and 24 were very comprehensive and fairly conducted. Breeden sketched out clearly in both of his memoranda his fear that I would reassert Hollinger Inc.’s rightful control over Hollinger International, as if this were self-evidently an affront to the indisputable public interest of both countries. There was an almost unquestioned presumption of guilt.
Lawyers supporting the transaction did so effectively, in contrast to the usual bombastic performance by Glassman’s lawyer, who was as belligerent as the client but more fluent. It was indicative of the Globe and Mail’s difficulty finding respectable opposition to our offer that it reinflated and touted the Vancouver investor-commentator Ken McLaren, who for many years has been seeking recognition from the financial press at almost every controversy, like a child at the back of the class whose hand is in the air eagerly waving at all times. The Globe and Mail promoted him as a reliable source of antagonistic comment and used him endlessly as such.
Counsel for Hollinger International and Catalyst (acting for Glassman) followed McLaren and engaged in their customary attempted assassination of me. They had no argument apart from hammering the theme that I was so tainted, corrupt, and dangerous that any means were justified to frustrate me. One of the opposition lawyers referred to me as “Saddam,” and claimed that what was afoot was a “titanic struggle between good and evil.” I received bulletins as the March 24 session wore on, feeling somewhat numb with the tension of the occasion. I called Eddie Greenspan, who went to the hearing room prepared to speak on my behalf.
Greenspan judged it unnecessary to say anything after hearing Alan Mark’s summary and rebuttal. He considered it “stirring and brilliant.” Mark gained the “Quote of the Day” in the Globe and Mail with “This is a lynch mob persecuting a man who hasn’t been found guilty of anything.” He pointed out that my associates and I had created value that was being squandered; that Paris’s compensation had been described even by Jereski as “grotesque”; and that Breeden had been trying to bully the Commission into crushing the minority shareholders again, as he had persuaded Strine to do a year before.
The OSC staff, though invited by the presiding Commissioner, Ms. Wohlberg-Jenah, to alter their endorsement of the offer, emphatically reaffirmed their decision that it was fair, with the enforcement director as their chief spokesperson. The Easter weekend was a time of great tension as all sides awaited the commission’s ruling.
THERE WERE OTHER CONCERNS. I had tried on the two days before Good Friday to close the deal in London for the sale of my house there. This was necessary to provide a reasonable pool of cash, and if the privatization did not go forward, it would be absolutely necessary for financial survival, including, in particular, paying Williams & Connolly’s bills. We just missed closing the sale before the Easter long weekend.
More worrisome, Glassman had finally bestirred himself, also on Thursday, March 24, to buy the Toronto-Dominion Bank’s shares in Hollinger Inc., a block of about nine hundred thousand shares, at $7. That meant nine hundred thousand fewer votes for privatization if we were allowed to make the offer. As far as we could discern, the other blocks with which we were in touch were solid. But if Glassman, who could muster about $300 million in his Catalyst Fund, went after all the blocks and was not his usual, indecisive self about what he paid, he could be a real threat.
There were only 7.5 million minority shares outstanding. Friendly blocks held about 2.3 million shares. Glassman was now close to 1 million. I believed I had a lead of about 1 million shares among the odd-lot holders, so Glassman would have to pick up more than 1 million shares before 10 a.m. Tuesday. I prepared, if necessary, to raise our offer price and considered methods of bidding for the underlying rights accruing to holders of the Contingent Cash Payment Rights (CCPR) set up by the litigation panel arrangements, as the rights themselves were not transferable. If Glassman went far enough above our price to blunder into an obligation to bid for all shares (more than 15 per cent above market price), we would consider selling to him and taking out $200 million.
I believed we had a support strategy that would be adequate and that might again be aided by the Glassman factor. On March 24, he had turned up personally twice at our office. The first time he came to see the head of the Ernst & Young inspection team and was seen off by the receptionist. (He doesn’t exactly have the physical presence of J.P. Morgan.) The second time he arrived with five podgy women in tow, who sat in the boardroom transcribing the names of shareholders from the shareholders list. Our informants sent us copies of hilarious emailed bickerings between the independent directors.
The noteholders were not inactive. One of their lawyers telephoned Avi Greenspoon in early March, threatening injunctive action if the special dividends from the Telegraph sale were not retained as collateral for their notes. They wanted a 13 per cent yielding, cash-collateralized note and $40 million of notes on the original terms. These people had succumbed to the virus of greed more terminally than anyone except the Walker-led, $100,000-per-month non-executive directors. Ever resourceful, Greenspoon “played the dumb Canadian,” a role whose validity, he dryly added, Americans never doubt. He strung it along with the help of Sullivan & Cromwell, and the noteholders more or less folded, illustrating again how fatuous was the position opposite the SEC originally championed by Walker that all would be collateralized: the cash collateral yielding the company 4 per cent and the notes costing it 13 per cent. This was the new-broom rotating chairman.
As light departed Easter Sunday, I finished a brisk neighbourhood walk with Barbara and took a swim, regarding the tattered pink western sky from my swimming pool as I had so often done on Sunday evenings from a nearby prospect in my youth. In those far-off days, I had timorously wondered what another school week would bring. Now I dared, very tentatively, to hope that justice might prevail. The holiday of Resurrection gave way to the long-awaited day of judgment.
MONDAY, MARCH 28, ARRIVED, and I steeled myself to hold any optimism in check, but still I had some excitement that we were about to turn a very advantageous corner. Barbara had retreated upstairs. Her appearances in my library seemed to coincide with bad-news telephone calls, and she had decided she was a hex. I sat like a zombie in front of my computer screen from 8:30 a.m. on, receiving emailed assurances from the OSC that their decision was imminent. The decision was initially announced for 11:00 a.m. When 11:30 a.m. passed and there was still no news, my optimism began to sink.
At 12:29 p.m., it clicked onto my screen. I scrolled to the end to read that the OSC had tersely rejected our application. The feeble rationale harped on the irregularities of the offer and implied that there might be some question of the independence of the directors and valuator. They could not state that they took the allegations Breeden and the SEC had brow-beaten them into making against my associates and me as proved. But the commissioners acted on the theory that they had been proved although I had had no compliance problems with the OSC in my career with public companies of over thirty years. Their own staff had given the green light to our offer, we had agreed to an independently administered litigation fund as a safety net should any irregularities come to light, and 87 per cent of the minority shareholders’ votes had come in favouring the privatization, but still the shareholders had been ignored and trashed by the very regulators who styled themselves as their protectors. It was astonishing. I could only suppose that the thrill of actual proximity to the big American former super-regulator Richard Breeden had turned the head of Ontario’s public securities protectors, including the robotic Ms. Wolburgh-Jenah, OSC inquiry chairperson.
On the afternoon of this crushing day, I convened a legal teleconference and said that I had to get completely clear of the companies, that we had to remove from Breeden’s hand the sword of instant victory he enjoyed by merely reciting my name.
We would have to get rid of Walker and Carroll, who would, by now, be drinking champagne from a fire hose. Otherwise, they would be instantly back, completely in charge at $100,000 per month, and would effortlessly dominate the others to complete the Strosberg playbook by putting Ravelston to the wall and delivering the company to Breeden at a handy payoff for themselves. Ravelston would have to be put into receivership within ten days and administered in its shareholders’ interest under court protection, asserting a post-Black right to get rid of Walker and Carroll. I would become a creditor because of my pension rights. Whatever value could be salvaged from my shareholding would be a bonanza to my very diminished expectations.
A little more than two years later, Hollinger Inc. would be worthless – reflecting an astounding performance by the Ontario Securities Commission. Ravelston would be worthless, and Hollinger International would have lost 95 per cent of its March 2005 value, and in another two years it too would be worthless. Judges Strine, Campbell, and Farley,* who is about to reappear, plus Breeden and the OSC, and a few late joiners would wipe out $2 billion of value in the briefly holy name of corporate governance. The only ones to have prospered were Breeden, Paris, Seitz, Walker, Carroll, the lawyers, Ernst & Young, and the receiver. It was for them that officials in Canada and the United States apparently toiled. I still had a good deal to learn about the imperfections of the rule of law in both countries.
I was completely finished as an important businessman, at least for an indefinite period. I would read and write. And something useful might still be possible, if I could survive the ordeal. Barbara and I had a very un-uplifting conversation before she prepared to go to London for the job of sorting and packing up the contents of our home on Cottesmore Gardens, now a mournful monument to a happy and stylish life that had gone forever. Pulling up stakes from the U.K. was wrenching for her. She had been something of a gypsy all her life and had wanted keenly to make a home in the country of her birth. It was the end of a more than twenty-year effort in London. Though Barbara fights it, she is privately a person of faith who in bleak hours falls back on cantorial music and ritual, usually alone in a room out of sight. We held each other before she left: “Whither thou goest, I will go, and where thou lodgest, I will lodge,” she said, commenting wryly that the next couple of promises in the text were a step too far.
We would surmount this. And yet, Breeden was just as horrifying (if more accomplished) as he had been the day before. He certainly deserved tactical credit for another victory, but our press release referred only to our sadness for the public shareholders, whom we had tried to serve and who had been denied a generous exit strategy twice in thirteen months by unjust judicial and regulatory decisions.
The Ravelston receivership was certainly not entered into because of bankruptcy. It was a prosperous company in assets, strangled of income by the seizure of both Hollingers by Breeden and Strosberg, acting through their respective pawns. Without any income it couldn’t possibly make the support payments to Inc. that Maureen Sabia had insisted on. If I put it into receivership myself rather than wait for the event, at least I could choose someone who would look after our interests. The role of a receiver in insolvency proceedings is to sort out claims under court supervision. He or she is sworn to put the interest of the stakeholders first. In Ravelston, the only stakeholders were the shareholders, which in essence meant principally me, so receivership seemed a good way to protect my remaining assets held there – namely my pension and my International and Inc. shares.
I hadn’t much time to search for the best receiver – the dominoes were falling all around me – and after speaking to a couple of companies, I took the recommendation of Derrick Tay at Ogilvy Renault, the law firm that had previously been counsel for me and had given me the services of Alan Mark. They recommended RSM Richter and assured us that firm would remember who had hired them and act responsibly. By now that had a hollow ring, but there wasn’t much else I could do apart from pray – which I was already doing. Tay’s advice, as I suspected, proved completely worthless.
There were still no victims of our misfortune except ourselves, though we would now quickly be joined by all the other shareholders. We knew that the agony would go on, probably for another two or three or more years. I hadn’t a hope that any of the Breeden-Paris-Seitz group knew how to manage the remaining newspaper assets. There wasn’t a single newspaper person or even manager in any field among them; they seemed uninterested in hiring any senior executive who did know the business, and while the Chicago Group of newspapers was profitable and ought to earn a good sale, it needed clever steering and editorial brushing-up first. I was still defending a noble cause, the right of an honest man to his reputation, though I was still inaccessible to much moral support. I had lost another battle, but not the just war, which had reached a new level of destructive intensity.
* James Farley was one of Canada’s most opinionated and frequently published judges – indeed an older, more voluminous and bombastic, but equally self-preening judge as Leo Strine, complete with the conviction of his riotously amusing wit.