Business

Buying into Elvis

Power Corp. gets a piece of a media giant

John Geddes February 19 2001
Business

Buying into Elvis

Power Corp. gets a piece of a media giant

John Geddes February 19 2001

Buying into Elvis

Business

Power Corp. gets a piece of a media giant

John Geddes

Paul Desmarais generally gets what he wants. From a humble start running his father’s bus company in Sudbury, Ont., in the 1950s, he built a business empire that spans the globe. As chairman of Montreal’s Power Corp. of Canada, Desmarais is also legendary for cultivating political contacts that link him closely to both Prime Minister Jean Chrétien and Finance Minister Paul Martin. Yet at 74, the patient patrician financier had fallen short on one aspiration. Despite his ownership of a few newspapers and repeated, frustrating forays into Canadian broadcasting, he

could not claim to be a major media

mogul. Until last week.

A blockbuster deal between Power Corp. and Bertelsmann AG, the German entertainment and information powerhouse, finally vaults Desmarais— and, in a sense, Canada—into the global media big leagues. The complex agreement, announced on Feb. 5, will see Power and its Belgian business allies swap a stake in a large European broadcasting concern for 25 per cent of Bertelsmann—controller of a vast array of companies ranging from the world’s largest English-language publisher, Random House, to a music division that holds rights to artists from Elvis Presley to Puff Daddy.

What adds to the intrigue of the deal is that the Desmarais family is not a huge media operator in Canada, save for its ownership of Montreal’s influential French-language daily La Presse, and three dailies and 15 weeklies bought late last year from Conrad Black’s Hollinger International Inc. But bids to break into TV have been thwarted by federal regulators, first in 1986 when Desmarais attempted to buy Quebec’s TVA network, then a decade later, when the family tried to launch a satellite television service, Power DirecTV. Blocked at home,

Desmarais set his sights on Europe. Partnering with Belgian business titan Albert Frère, he emerged as a force in European broadcasting.

Desmarais and Frère are both patriarchs of family-controlled businesses— a crucial element, some say, in sealing the Bertelsmann deal. The German media giant is, remarkably, still a private company, closely controlled by the Mohn family of the northwestern industrial town of Gütersloh. “They were not going to let 25 per cent of Bertelsmann go to shareholders they didn’t have a good feeling about,” said a source close to the Desmarais clan.

Cautious though the Mohns may be, Bertelsmann is hardly looking conservative these days. (One highly visible sign of Bertelsmann’s embrace of the new era: a partnership with Napster Inc., the controversial Internet music-swapping service.) Bertelsmann, which plans to go public in about three years, is in the thick of the race among a few international media heavyweights—including AOL Time Warner Inc. of New York City and Paris-based Vivendi Universal SA—to take advantage of the Internet revolution, and wants to spread its wings in the United States. Could a bigger presence in Canada also be in the cards? Insiders point out that any future Bertelsmannbacked Canadian venture could avoid Ottawa’s foreign ownership restrictions if Power was the controlling partner.

But Merrill Lynch Canada analyst Brad Smith suggests that there is much bigger potential for Bertelsmann and Power to join forces farther afield—in Asia. Desmarais has cultivated business ties in China for decades. Power now has four per cent and a seat on the board of CITIC Pacific Ltd., a Beijing-backed consortium that is building a 32,000km fibre-optics network with the potential to deliver modern telecommunications to 80 per cent of Chinas population. Smith wonders if Desmarais might one day help pump Bertelsmann content into that Chinese pipeline. “Everything Desmarais does takes an awfully long time,” he says. “But usually when it’s completed, it becomes clear that it was a very good idea.” And increasingly, it seems, those ideas may be paying off far from home.