Rolling for billions
The tranquil possession of power has always been the dominant obsession of those who have it. But every once in a while the earth moves and there occurs a sudden shift in authority. A new corporate roster acquires the magic that gets things done. This article attempts to reconstruct the inside story of the largest and most controversial deal in recent Canadian business history, which culminated in the transfer last week of Brascan Limited's $2.5-billion assets from the 10-year reign of John Henderson (Jake) Moore to ownership by a group of Establishment outsiders, headed by Peter Bronfman. The two men could hardly be more different.
It is barely seven o’clock in the morning and Peter Bronfman is on the track surrounding Upper Canada College’s main football field, the snap of his Etonic jogging shoes beating the cinder path into black cement. This is June 29, the day of the big take-over and Bronfman is even more nervous than usual. “The great irony,” he is saying, “is that my brother Edward and I
thought, once we’d sold the Canadiens hockey club last summer, we would kind of disappear from the scene. What we didn’t count on was the upset with Brascan. So instead of vanishing, our profile unfortunately has never been higher. It certainly wasn’t planned that way.” Secretive, sensitive and shy, Peter Bronfman treats most of his small but loyal coterie of friends like journeymen
therapists, always demanding a second opinion. He seems permanently adrift in some private testing ground, determined to prove once and for all that his late uncle Sam, the formidable founder of Seagram’s, was wrong to cut him and Edward out of inheriting part of the huge liquor and oil empire.
Relying mainly on the inspiration of their two main associates—Trevor Ey-
ton, a canny and lightning-witted Toronto laywer, and Jack Cockwell, a cheerful South African chartered accountant with a slide-rule intellect and tax assessor’s eyes—the Bronfman boys have managed to parlay Edper (their family holding company) into a prosperous $2-billion conglomerate. Its assets include Montreal’s huge Place Ville Marie, half a dozen of the country’s largest shopping centres, much of downtown Calgary, and 20 per cent of the new Continental Bank of Canada.
But no matter how much he achieves, Peter’s sense of insecurity seldom fails him. Despite his dollar worth, he remains so uncertain about his fiscal future that he not only has his socks darned but occasionally wears galoshes even when it’s not raining—“just to save the leather on my soles.”
He’s a robust jogger and as he circles the U.C.C. track the traffic flow thickens, cars moving to their daily downtown nesting spots. Peter is loosening up now. “Edward and I have always wanted our major position to be in a public company, to give our children maximum liquidity so they could act at will. If they wanted to build a house in Hawaii they could do it. Brascan is really the fulfilment of that goal.”
Loping through the morning sunlight, Bronfman makes it all sound easy and inevitable. But Brascan’s acquisition was complicated, rough and expensive. The 13 million shares required for control cost Peter and his partners a flat $340 million. Cash. Edper’s 2.4-million share purchase on April 30, 1979, was the largest single trade ever recorded, in volume and dollars, on New York’s American Stock Exchange. The tactics employed by both sides during the 83 days of frenetic corporate warfare that led up to this calm morning set so many precedents that the Ontario cabinet immediately afterward passed a law making any repetition almost impossible.
Peter is growing tired. He jogs back to the apartment he has rented for himself and his wife, Dora, since moving to Toronto from Montreal last year. The Brascan annual meeting, where he will be acclaimed chairman and chief executive officer, is less than three hours away.
The corporate wars of the past three months have changed him. The Bronfman eyes no longer give off that aura of being his last refuge of besieged truth. His look has a new spark of determination. “In my 20s,” he recalls, “while other young guys were busting their asses, when I wasn’t with my own kids, I
was doing community work, because I guess that was something in our family blood. And my kids. Well, they were definitely going to have a relationship with their father that I never had. So business was a kind of hobby. It’s only in the past year I’ve invested the kind of hours many of the people I’m associated with have been spending. Maybe once this Brascan thing cools down, I can get back to a regular schedule ...”
John Henderson Moore, the Establishment honcho who lost the Brascan chairmanship to Peter Bronfman, marches to a very different piper. Known as “Jake” to everybody from the pilot of his private Gates Learjet to the high-shooters at New York’s Morgan Guaranty Trust where he dominates the International Council, Moore personifies that vaguely endangered species of high-caste Anglicans who still graze in the tranquil pastures of London, Ontario.
No matter where he goes—and Jake is welcome everywhere he lands—his soul belongs safely tucked into the scarlet blazer of the London Hunt & Country Club. His grandfather ran London Life for 20 years. Young Jake touched all the right bases: Ridley, Royal Military College, Clarkson, Gordon & Co., John Labatt Ltd.—as the first non-family president. He bought a farm at Lambeth, right beside the colonial spread of Captain Joe Jeffery, and the two of them occasionally josh each other about belonging to London’s most prestigious car pool.
In his 48th-floor headquarters at Toronto’s Commerce Court West, with eight vice-presidents doing his bidding, Jake had begun to believe in his own impregnability. Coolly collecting the $250,000 annual salary which ranked him as the country’s third-highest-paid executive, he chartered helicopters for midweek sorties to the farm, flirted with Canadian nationalism, bought paintings and displayed in his office a stretched sheet imprinted with lipstick kisses by artist Joyce Wieland while she sang O Canada.
How sweet it was. He served on a dozen boards (including Canadian Pacific Limited, Bell and Hudson’s Bay), cultivating the bonhomie of a seasoned gentleman entrepreneur. In fact, just about the only people who doubted his charms were the 38,000 shareholders of Brascan.
Established in 1899 by a duo of imaginative Canadians who used teams of donkeys to pull trams up the hills of Rio de Janeiro, most of Brascan’s invest-
ment clout still resides in Brazil, a military dictatorship, with inflation rampant at 40 per cent and tough laws restricting the outflow of profits on foreign investments.
Under Moore’s direction, Brascan became an ungainly agglomeration of assets and liabilities that ranged from Rio’s luxurious Hotel Intercontinental to Labatt and the Toronto Blue Jays, Laura Secord and the Great Canadian Soup Company. His main preoccupation was switching assets out of South America into profitable Canadian enterprises. Paradoxically, only a corporate beefeater with Moore’s thick hide and gambling instinct could have succeeded in getting as many cruzeiros out of Brazil—yet these same qualities only hampered his Canadian reinvestments. In 1970, he plunged $40 million into Elf Oil & Gas and lost it all; a $9.8-million investment in the Sukunka coal fields yielded the same return, as did so many of his other fiscal adventures that it seemed at times as if Moore’s greatest strength was success by inadvertence.
“Brascan’s record of earnings has been one of the worst in North America over the past five years,” commented Andy Sarlos, one of Bay Street’s most sagacious and influential financial advisers. “The 1978 rate of return was a low four per cent and similar calculations for the past five years show returns of less than two per cent.” Even Brascan’s own executives recognized their shortfalls. In a confidential memorandum to William Miller, the company’s chief financial officer, R. D. Simon, Brascan’s director of taxation, wrote that “shareholders do not regard us as an organization with drive and promise, but as a dormant piggy bank.”
Lethargic it may have been, but in 1978 the piggy bank still yielded a weekly cash flow of $2.6 million. As shareholder criticism increased, Moore set up trenches of self-defence, moving more inside directors on to the board and rescheduling their elections at three-year intervals. When he arrived in 1969, three of 22 directors also served as corporate officers; by 1978, counting directors associated in various ways with the Brascan organizations, 10 of the 19 directors could be considered insiders.
The crunch came late in 1978 when Brascan negotiated the sale of its main Brazilian subsidiary, Light-Servicos Electricidade S.A. for $447 million. Suddenly, Moore was faced with having to find alternate investment outlets for the huge cash influx—and Brascan had become a hot take-over prospect.
To protect the investment and ward off outsiders, Brascan board members formed an “acquisition analysis committee” to invest the cash, which eventually examined the balance sheets of nearly 200 companies.
Movement became more important than direction. Vice-presidents were kept in a constant state of flux, combing the purchase potential of such corporate giants as Norcen, Consumers’ Gas, Noranda, Hiram Walker-Gooderham & Worts, and Liggett & Myers. None seemed to fit. Yet Bay Street’s rumor caverns constantly reverberated with talk of planned grabs for the Brascan kitty.
On Nov. 10, 1978, R. P. Simon, sent a “very confidential” memorandum to William Miller advocating a daring op-
tion. It amounted, in effect, to an internal coup d’état. The company’s senior officers would incorporate a private company, approach Morgan Guaranty Trust interests in New York for a “soft” $650-million credit line and themselves sponsor a $25 bid for all the company’s outstanding 26 million shares. The bait held out to Morgan was the valuable charter for Banco Brascan de Investimento S.A., the Toronto company’s Brazilian investment bank. “The idea,” wrote Simon, “is based upon the proposition that if our vulnerability is real (and I strongly believe it is), then it is visible and the first take-over artist with enough gumption will walk away with the whole cake.” Then, mixing his metaphors, Simon also wrote: “We will be taken over like the ripe plum we are.” He recommended his suggested alternative as “a real possibility of engaging in the greatest single coup probably ever undertaken in Canada, and possibly elsewhere.”
The project received the sanction of several Brascan executives and, even though it wasn’t discussed at the board level, two million shares were secretly collected to launch the buy-back, which was eventually abandoned. ^
It may be giving the Brascan hardliners too much credit for Machiavellian intrigue, but having abandoned the idea of buying out the company themselves, the only certain way to keep it out of anyone else’s grasp (and thereby hang on to their jobs) was to empty out Brascan’s treasury. This strange scenario would have been achieved with astounding speed had Brascan’s unexpected bid for the F.W. Woolworth Co. actually been successful.
The Brascan bid of $35 per share amounted to a prospective expenditure of $1.3 billion, which made it the largest cash offer in U.S. stock market history.
Once North America’s leading retailer, Woolworth had not modernized its stores or offices. The company’s brightest occasion seems to have occurred on April 24, 1913, when President Woodrow Wilson pressed a button in the White House and 80,000 light bulbs lit up the new 60-storey Woolworth building, then the world’s tallest structure. Sales in 1978 amounted to $6.1 billion, but the proposed purchase price was so huge that the Woolworth acquisition would have created a tremendous financing problem for Brascan.
The Woolworth idea was first broached by Iain Richmond, Brascan’s director of corporate development, in February of 1979, though he later thought the better of it. At least two
studies were commissioned for submission to the board before it had to ratify the $1.3-billion acquisition. But directors were given so little notice that Lewis Harder, a New York mining executive and longtime Brascan board member, ordered a large block of Woolworth stock on April 5, unaware of any possible conflict of interest.
The renowned Touche Ross accounting firm which had been retained to write one of the Woolworth reports handed its findings to a Brascan vicepresident on April 5, but no one—not Jake Moore nor William Miller—took the time or trouble to read it.
The other study, written by David Yunich, a former vice-chairman of New York’s R.H. Macy & Co., arrived at Brascan’s offices on March 19. Even though it is only nine pages long, the Yunich Report also remained unread.
This was probably just as well, because both reports expressed grave reservations about the proposed Woolworth purchase. No documentation concerning the Woolworth offer had been distributed to Brascan’s outside directors prior to the April 6 board meeting, nor were the directors who didn’t happen to be members of the board’s executive committee told that the Woolworth acquisition would be on the agenda. This was a particularly strange omis-
sion, because in order to finance the Woolworth purchase Brascan would have had to sell nearly all its most profitable assets (including its share of John Labatt, Triarch, Great Lake Power and Consumers Glass). In effect, the board was being asked to approve not merely the largest cash offer ever made on the U.S. stock market, but to have it financed through the sale of its most valuable existing assets—and all of this without either consulting shareholders or bothering to read the reports they themselves had commissioned on the deal’s feasibility.
On April 6 the Brascan board unanimously approved the Woolworth offering. Then, at exactly 4 p.m., the real bombshell arrived. It was a letter to each board member containing a detailed take-over offer from Edper, worth $328 million. The Bronfmans had jumped into the action.
Peter Bronfman’s investment company had actually been buying Brascan stock for the previous three months. On Feb. 20, Jack Cockwell, who had directed the Bronfmans’ portfolio for a decade, had suggested the formation of an investment subsidiary with the Patino family as minority (34 per cent) partners. The Bronfmans’ only partner in their Brascan venture was Jamie Or-
tiz-Patino, nephew and heir to the huge tin fortune founded by Simon Patino, who died in 1947. A month later some 1.3-million shares had been purchased for $30 million, making Edper Brascan’s largest single shareholder.
To emphasize the seriousness of its intentions, Edper enlisted two prominent members of the Toronto Establishment: Patrick John Keenan (the chief Canadian representative for the Patino interests) and, most important of all, Fred McCutcheon, whose father had been one of E.P. Taylor’s original Argus partners. One of the founding members of the prestigious Loewen, Ondaatje investment house and a former chairman of the Toronto Stock Exchange, he was a longtime associate of Eyton’s as well as a Patino director.
McCutcheon, an amiable and talented extrovert who works out of Buttonville airport, became a key member of the Edper operation.
As soon as Peter Bronfman (his brother Edward remained a passive supporter throughout the Brascan campaign) agreed to reach out for control of Brascan, a meeting was arranged with Jake Moore. Accompanied by Bruce Lockwood, a lawyer from Blake, Cassels & Graydon, Moore arrived at the designated suite of the Royal York Hotel at 1 p.m. on April 5, his step heavy with
reputation, a bankable man taking time out to dismiss these unwanted intruders.
Trevor Eyton outlined Edper’s intentions of making a 51-per-cent take-over bid, accompanied by pledges to co-operate with Brascan’s existing directors and management. Moore responded with the equivalent of a verbal shrug and the following day both his offer for Woolworth and the Edper bid for Brascan went public.
For the next three months the two groups staged a legal shootout that turned into a psychological vendetta. Each side tried to get the other tied up in court. They both succeeded, though Edper eventually won the major judicial decisions. While Brascan’s task force was much larger (Jake Moore laid out $5 million in legal fees alone), the Edper team was more flexible. Meeting either in Peter Bronfman’s office in the Royal Bank’s Toronto headquarters building (with its two Emily Carrs, Etrog sculptures and Coburn landscape) or two floors below in Trevor Eyton’s chambers (furnished in British admiralty modern with hand-carved chairs, old maps and that ultimate of Toronto status symbols—an oriental rug laid atop mushroom-colored broadloom), the Edper players had the advantage of dealing with their own chips. “We were a small group,” Peter Bronfman recalls, “and could move very quickly without having to call board meetings. Our secret weapon was that we were using our own money so if we wanted to spend it, we could.”
Keenan and McCutcheon had made a previous study of Woolworth’s outlook for S.G. Warburg, the British merchant bankers, so they could supply Cockwell with the fiscal background which allowed him to estimate that the Brascan take-over might result in a $100-million negative cash flow. It was on this basis that Edper offered to buy 51 per cent of the Brascan stock, providing that Moore withdrew his Woolworth bid. The Ontario Securities Commission turned down such a conditional bid and the Edper group began to search for alternatives. Unhappy Brascan shareholders, led by Max Tanenbaum and Andy Sarlos, whose group controlled two million shares, quietly joined the Edper group. It was Keenan who discovered during a flash trip to The Hague, through London financier Sir James Goldsmith, that Noranda and Brascan were negotiating a defensive share-swap.
On Sunday, April 29, Bronfman and his advisers decided to make a major
purchase the following day through the American Stock Exchange (AMEX). The buying began at 4:30 a.m. on April 30, when McCutcheon started bidding for Brascan stock on the London Exchange. But he got bids for only 15,000 shares at $21. The Bronfman group chose the AMEX route, because while Brascan didn’t maintain a listing on the exchange it had trading privileges, which meant that no time-consuming documentation was required for block trades. Their 2.4-million share purchase turned out to be the largest transaction in American Stock Exchange history. Before the day was out, Edper had bought a total of 3.3-million shares, giving it 18 per cent of the company’s
stock. A similar buying spree followed on May 1, with another 3.4-million shares falling into Edper’s portfolio. In two days Bronfman and his partners had spent $174 million. And Edper had yet to call in any of its bank credits.
More significantly, it suddenly seemed as though everyone wanted to climb aboard the Edper bandwagon. Among those who sold their shares were such well-known establishmentarians as Paul Desmarais, Harrison McCain, Ralph Medjuck, Charles Orenstein and, best of all, Peter’s cousin and heir to Sam’s fortune—Charles Bronfman.
The battle now was officially over; control if not ownership had been wrested from Jake Moore’s hand. All that remained was for the two sides to negotiate the terms of surrender. It was Eddie Goodman, that most ubiquitous of power-brokers, who suggested a peace treaty, and it was on May 27 in the Toronto offices of Tory, Tory DesLauriers «fe Binnington that Jake Moore and Peter Bronfman finally met.
Moore had been warned by his advisers that Peter despised dressing up, often chairing board meetings in a favorite sweater or sports shirt. That was true enough, but on this particular occasion, Bronfman’s retinue begged him to pay at least nominal homage to Moore’s London heritage by not only putting on some pants, a coat and tie, but in a combination that actually matched. It was a sign of the tension that had developed between the two men that, when Jake Moore arrived in an old sweatshirt and Peter Bronfman showed up in a meticulous three-piece suit, neither of them cracked a smile.
A separation settlement was negotiated, awarding Moore a year’s salary plus an annual pension of $100,000 for the lifetime of himself and his wife.
Edper had previously announced a further bid for another $140 million worth of Brascan shares to bring its holdings past the 50 per cent mark. Finally, on the morning of June 14, Trevor Eyton walked over to the presidents’ gallery of the Toronto Stock Exchange, where he could look down at the book maintained by an investment dealer near the post where Brascan was being traded. He could see the bids pouring in, so he phoned Ruth Millman, his secretary, with the news and she burst into Bronfman’s office to congratulate him. Peter remembers the moment perfectly. “We shook hands, grinned for about eleven seconds, then got back to work. We’re not gloaters. Jack Cockwell is too smart to gloat, and I’m too nervous.”