BUSINESS

Showdown in Montreal

Memotec survives an assault from Bay Street

BARRY CAME May 27 1991
BUSINESS

Showdown in Montreal

Memotec survives an assault from Bay Street

BARRY CAME May 27 1991

Showdown in Montreal

BUSINESS

Memotec survives an assault from Bay Street

Ever since it stunned the business community in 1987 by winning a bidding war for control over Canada’s overseas telephone links, Montreal-based Memotec Data Inc. has been wreathed in controversy. A small and largely unheralded high-technology company, Memotec outbid five larger rivals and paid $488 million to purchase Crownowned Teleglobe Canada Inc., the country’s major carrier of international telecommunications. In the intervening years, Memotec has

been dogged by almost continual sniping from business competitors and federal agencies alike. But Memotec’s beleaguered management faced its biggest challenge last week when the company’s senior officers, chairman Eric Baker and president William McKenzie, managed to survive a bitter public struggle for control of the company launched by Torontobased Gordon Capital Corp. “I’m tired,” a relieved McKenzie confessed to more than 400 Memotec shareholders at the company’s annual meeting, after narrowly blocking the coup attempt. “It has been quite a week.”

It was a week that began when Gordon, levelling allegations of mismanagement, announced that it was leading a proxy fight to unseat Baker, McKenzie and a third company officer from Memotec’s 13-member board of directors. Gordon claimed that it was acting on behalf of shareholders who were dissatisfied with Memotec’s management, but declined to

identify those shareholders or how much stock they control. The challenge, based on falling share values, set off a furious round of publicly traded accusations and behind-the-scenes manoeuvring to marshal forces for a dramatic showdown at the annual meeting in a downtown Montreal hotel. In the end, Baker and McKenzie managed to hang on to their jobs by striking a last-minute backroom deal with two powerful institutional investors. But in the process, they appear to have lost absolute

control over the controversy-plagued company that holds a near monopoly over Canada’s telecommunications with the outside world.

The deal that saved Baker and McKenzie, and averted a floor fight, came together only hours before shareholders, analysts and reporters packed the ballroom for the critical meeting. It was negotiated with the Caisse de dépôt et placement du Québec, the fund that owns 12.5 per cent of the company’s outstanding stock, and the Ontario Municipal Employment Retirement System (OMERS), holder of 7.8 per cent of Memotec shares. In return for the support of the two big pension-fund managers, Baker and McKenzie agreed to sacrifice two of their close allies on the Memotec board and replace them with independent directors. The Caisse chose former Air Canada president Pierre Jeanniot; OMERS selected George Fierheller, chairman and chief executive of Toronto-based Rogers Cantel Inc.

The new arrangement leaves Memotec in control of only six of the 13 members of the board. The Caisse already held one board seat, and the remaining four directorships are controlled by the telecommunications giant BCE Inc., parent company of Bell Canada and Memotec’s single largest shareholder, with 31.5 per cent of the company’s shares. In fact, Memotec claimed that BCE, one of the companies Memotec outbid for Teleglobe, was the major force behind Gordon’s bid to oust Baker and McKenzie, although spokesmen for both companies have denied the allegations. BCE chairman Raymond Cyr, however, has made no secret of his company’s desire to dismantle federal regulations preventing Bell from holding a majority stake in Teleglobe, and he publicly acknowledged last week that Gordon’s effort had his company’s “moral support.” Only hours before Memotec’s annual meeting, he accused Memotec’s management of a “dismal performance” as a result of numerous acquisitions of small high-tech companies that have diluted the profitability of Teleglobe. The same criticism was levied earlier this month by the Canadian Radio-television and Telecommunications Commission, which questioned Memotec’s practice of using profits from Teleglobe to purchase other companies.

In light of what transpired at the annual meeting, Memotec’s management likely will no longer be free to pursue similar policies in the future. One sign of that power shift occurred when the meeting agreed to change the company name from Memotec to Teleglobe Inc., a move analysts interpret as meaning that the company will now concentrate its efforts on the g telecommunications subsidiary that § has been at the centre of the past s controversy.

o That is certainly the view of the = company that provoked the latest fuu ror. A Gordon director, Thomas Allen, who spearheaded the proxy war, told the annual meeting that his firm was “completely satisfied with the result”—even though Gordon withdrew its slate of officers before the meeting, and despite the fact that the firm is unlikely to collect the $400,000 fee it wanted for organizing the fight. “We have been seeking one goal and one goal alone in this exercise—to be instrumental in causing significant change to the board of directors,” Allen told the shareholders. “That change is now being proposed.”

Precisely where those changes may lead is an open question, particularly since the CRTC is scheduled to review Teleglobe’s near-monopoly over international communications later this year. Whatever eventually transpires, however, it is unlikely that Eric Baker and William McKenzie will be as free to decide Teleglobe’s future course as they have been in the past.

BARRY CAME in Montreal with DEIRDRE McMURDY in Toronto

DEIRDRE McMURDY