PUBLISHING

Sell-off or sellout?

DIANE TURBIDE March 7 1994
PUBLISHING

Sell-off or sellout?

DIANE TURBIDE March 7 1994

Sell-off or sellout?

PUBLISHING

DIANE TURBIDE

The allegations include double-dealing, double standards, doublespeak and double cross. The accusers are members of the Canadian cultural community; the accused is the federal government. At issue is the sale last month of Ginn Publishing Canada Inc., a Canadiancontrolled company specializing in educational materials, to Paramount Communications Inc., the American entertainment and publishing giant. Domestic publishers say the $10.3-million transaction reflects a fundamental change in a 25-year-old policy that protects cultural industries from foreign takeovers. The government denies the charges, claiming that the deal is a special case, an anomaly that does not signal any departure from its own policies on foreign ownership. Trying to determine who is right means wandering through a labyrinth of regulations, guidelines, program requirements, eligibility criteria and legal technicalities. Maclean’s has learned, however, that since 1989, Ottawa had a secret verbal agreement with Paramount giving the company first refusal on Ginn—

Secret dealings stir protests about a sale to Paramount

despite a stated commitment to seek a Canadian buyer.

On Feb. 18, the federal government announced that it had approved the sales of Ginn—in which it had a 51-per-cent stake since 1989 through the Canada Development Investment Corp. (CDIC), a Crown corporation—and of Maxwell Macmillan Canada, a foreign-owned subsidiary operating in Canada, to Paramount. A 10-page departmental document intended to brief Canadian Heritage Minister Michel Dupuy indicates that the Tory government laid the groundwork for last month’s sale with a verbal promise to Paramount in 1989. States a briefing note in the document: “Under a verbal agreement with the previous government, Gulf + Western (now Paramount) was given the right to repurchase Ginn at the original selling price if the foreign-investment policy for the book trade was amended.” The policy did change in 1992, and Paramount exercised its option last month. The document further confirms that the current Liberal government adopted the position that the Tory promise was legally binding.

Canadian publishers reacted angrily as the

details emerged, with some calling for an inquiry. “There is something totally wrong and immoral about the way the deal was conducted,” says Jack Stoddart, chief executive officer of Stoddart Publishing, one of the largest Canadian-owned firms. But government officials insist that the deal is a good one for Canada. Maintains Adam Ostry, director general of cultural industries policy at the Canadian heritage department: “Given the constraints, we got the best deal possible for Canada and the Canadian taxpayers.” Publishers and others in the cultural sector contend that the sale of Ginn sends a dangerous signal about the larger issue of cultural sovereignty. Ginn, with 75 employees in suburban Toronto, had 1992 sales of nearly $12 million, mainly in elementary-school materials. TalonBooks publisher Karl Siegler, who serves as president of the Association of Canadian Publishers (ACP), argues that the sale contravenes Canadian policy on culture. “Ownership policy in Canadian cultural industries—not just books but in recordings, film and magazines—is specifically designed so that Canadians can maintain their own cultural identity,” says Siegler. “Ginn is only small potatoes,” he says. “What’s really being subverted here is Canadian identity and sovereignty.” The sale, publishers say, sets a precedent for more foreign buyers to acquire Canadian publishing interests. And at least one Canadian publisher interprets it as a signal that he may now sell his own company abroad. Said Ronald Besse, chairman of Toronto-based Canada Publishing Corp.: “If I want to sell my company to a foreign interest, it now looks like I can do it.” When Gulf + Western sold controlling interest of Ginn to the CDIC in 1989, it was complying with the so-called Baie Comeau publishing policy of 1985, which stipulated that foreignowned subsidiaries that had undergone ownership changes must divest 51-per-cent control to a Canadian buyer within two years. After the two-year period had ended and no Canadian buyer was found, the CDIC paid $10.3 million for 51 per cent of Ginn, an amount that industry analysts said was grossly inflated from a value they estimated to be $3 million to $4 million. But government officials point out that, whatever the company’s original value, Ottawa has now recouped its investment.

The Tory government declared that if it sold Ginn it would be to a Canadian publisher. However, several Canadian firms say that they

were frustrated in their attempts to get information about purchasing Ginn. One executive who says he made overtures is Besse. “I don’t think I ever let three months go by without contacting them,” he said. “I wrote letters. I even sent my lawyer over in November, 1993. I was told they were still working on technical difficulties, and I was at the top of the list.” Ward Pitfield, executive director of the CDIC, counters that he “never saw any offers. No one was rattling the doors to get in.”

It now seems that any Canadian efforts to buy the CDIC’s majority share of Ginn since 1992 would have been futile because of the secret verbal contract. That year, when Perrin Beatty was the minister in charge of culture, the rules concerning foreign investors changed, making Paramount’s reacquisition of Ginn possible. Under the new rules, foreign-owned subsidiaries did not have to sell control to Canadian publishers— provided that the new foreign owner committed to undertakings that could be determined to be “of net benefit” to Canada.

In the Ginn and Maxwell cases, the government maintains that the undertakings Paramount made as a condition of sale met

the net-benefit test in an internal government review. Paramount’s commitments include developing and marketing Canadian books and maintaining a warehousing system in Canada. Those requirements also apply to the U.S. company’s other book holdings in Canada (including Prentice-Hall Canada) for five years. But the most significant new commitment calls for Paramount to have its noneducational book lines, valued at $4 million in 1993, distributed by Canadian-controlled publishers. Ostry hails that provision as “a victory” for Canadian publishers. “The one area where Canadian publishers can realize true financial benefit is in distributing g foreign books in Canada,” he I says. “In this case, money will Igo to Canadian publishers’ pockets. That’s a big deal.”

In addition, Ostry points out that the promises exacted from Paramount in the case of Ginn are even more significant because the CDIC, as a Crown corporation, was not governed by the Investment Canada Act. Indeed, Ostry says that none of the policies regarding foreign takeovers of publishing companies applied to the sale of Ginn. ‘Talk about getting off on a technicality,” counters ACP president Siegler. ‘We were

never paranoid enough to comb the fine print for that kind of bizarre technicality.” Government officials stress that if Ottawa had not adhered to the agreement with Paramount, it would likely have found itself in a costly breach-of-contract lawsuit. Stoddart, however, argues that the Liberals should have abided by their campaign rhetoric about increasing Canadian presence in the domestic market. “This government—that didn’t even make the original deal—can’t even stand up and say, ‘No, that’s wrong, we believe in Canadian ownership in the cultural industries.’ I’m sorry, they’re ducking. If they can spend hundreds of millions to cancel the helicopter deal, why can’t they get out of this?”

Curiously, as controversy over the Ginn and Maxwell Macmillan sales continued to brew, ownership of the two companies will soon be subjected to government review again—because of the Feb. 14 takeover of Paramount by Viacom Inc. The federal industry department will be looking at Viacom’s newly acquired Canadian holdings—which also include Canada’s Wonderland amusement park, the Famous Players theatre chain and the publisher Prentice-Hall Canada. Some publishers have charged that Ottawa moved too quickly in finalizing the Ginn and Maxwell Macmillan deals four days after the Viacom coup. That is just another puzzling detail about a sale that seems likely to rankle cultural nationalists for years to come. □