BUSINESS WATCH

Conrad Black’s bold bid for Southam

Though he appears to spend most of his time mesmerizing himself with his own rhetoric, Black is an incurable dealaholic

Peter C. Newman November 30 1992
BUSINESS WATCH

Conrad Black’s bold bid for Southam

Though he appears to spend most of his time mesmerizing himself with his own rhetoric, Black is an incurable dealaholic

Peter C. Newman November 30 1992

Conrad Black’s bold bid for Southam

BUSINESS WATCH

Though he appears to spend most of his time mesmerizing himself with his own rhetoric, Black is an incurable dealaholic

PETER C. NEWMAN

To those of us who follow Conrad Black’s corporate gyrations, his recent purchase of 23 per cent of the Southam publishing empire was instantly identifiable as a commercial version of the “expanding-funnel offence,” as conceived by one of his favorite mentors, the British military historian B. H. Liddell Hart. As Black, who loves to base his business tactics on army manoeuvres, once explained: “I keep advancing like a platoon of men through a forest, parallel lines moving in various directions— and whenever there is a breakthrough, I try to exploit it.”

Though he appears to spend most of his waking hours mesmerizing himself with his own rhetoric, Black is an incurable dealaholic whose ambitions defy customary boundaries. A mixture of calculation and boldness, he is not particularly attracted by modesty and feels little ambivalence about being rich. Beyond money and even beyond power is his obsession with deal-making, the thrill of besting competitors, of living on the edge by negotiating against seemingly impossible odds, as a whole industry—and sometimes a whole country— waits to see what he will do next.

Unlike most corporate paladins, whose overwhelming priority these days is to survive the next session of whatever bankruptcy court is currently on their case, Black is in the enviable position of having acquired one of the world’s great newspaper franchises, the London Daily Telegraph, which has given him an unparalleled international power base as well as impressive cash flows that need investing. (Purchased in 1985 for $60 million, the Telegraph is now worth $1.5 billion; for the first nine months of this fiscal year, Hollinger Inc., Black’s holding company, reported revenues of $654.6 million and profits of $63 million, up 300 per cent from 1991.)

His $259-million purchase of The Toronto Star’s Southam holding has all the elements of a classic Black takeover. Just like the Telegraph and the Fairfax newspaper chain in

Australia at the time he made a grab for them, Southam is in the feeble grip of a fading family dynasty. The Southams fathered too many heirs, diluting their entrepreneurial genes and equity positions. Only two decades ago, family members owned 44.9 per cent of the company’s shares, their loyalties reinforced by a privately published booklet, issued periodically, that gave news of the company’s and the family members’ activities. They still hold the dinners and issue the booklet, but their aggregate holdings are down to 17 per cent. The family’s inability to speak with one voice or to field strong management successors has helped leave their chief assets bereft of profit. (In the first nine months of the current fiscal year, Southam dropped $186 million on revenues of $600 million.)

The head of the Southam clan is 82-year-old St. Clair Balfour of Toronto (related to the Southams maternally), who was the company’s president and chairman between 1961 and 1985. “I’m very sorry that our arrangement with Torstar has come to an end,” he told me last week. “It was something I had been working on for 40 years and thought I had achieved. They sold because Southam’s performance has been lousy and there had not been a happy

relationship between the previous management and Torstar.”

The Star became unhappy with its Southam investment when the board pushed through its poison pill provision at the June, 1990, board meeting. (Significantly, the working papers customarily distributed to directors so they can study agenda items before they meet did not include any notice of the poision pill provision, which was passed by the board over the objections of its three Star representatives.)

Balfour comments that the existing poison pill arrangement—which gives Southam shareholders the right to buy additional stock at a 50-per-cent discount if an acquisitor tries to purchase more than 20 per cent of the common shares without the board’s approval—would make it prohibitively costly for Black to extend his ownership, but adds, “If I were a board member, I would be saying to myself, ‘I’m not going to put myself in that position, this is an issue that should go to the shareholders.’ ” (The Southam board still includes three family members.)

As far as the poison pill is concerned, David Radler, the Vancouver-based president of Hollinger who will be Black’s point man on the Southam operation, told me: “Inevitably, it’s going to be up to the board to decide what it wants to do. Are they going to put their life’s savings in jeopardy by maintaining that poison pill? Are they going to vote to keep it in force, knowing full well that if they do they will be sued by any minority shareholder anxious to maximize his profits? We will sue them too, but we probably won’t be the first in line. I personally believe the poison pill is illegal, or should be. Anything that limits the shareholder’s right to maximize his returns is wrong. I believe in the free enterprise system and I don’t believe in entrenched managements—whether it’s ours or someone else’s.”

Neither Radler nor Black relish limiting their involvement in any of their purchases to being passive investors. They do own only 13 per cent of the Liverpool Post in England, just 40 per cent of the Cayman Island Compass in the Caribbean and only 19.9 per cent of Toronto-based Financial Post, but they either have outright ownership or exercise effective control in nearly all of their other ventures. “We’re going into this thing with an open mind,” adds Radler. “If at some point we decide to go for a bigger investment, the Southam directors will be the first to know.”

If Hollinger decides to go for control, its biggest headache will be dealing with the entrenched union featherbedding at the Pacific Press newspaper plants in Vancouver. Unlike Britain, where Black’s company had the advantage of then-Prime Minister Margaret Thatcher putting organized labor in its place, on Canada’s West Coast, the party in power is the NDP, which, with the recent introduction of its labor code, is turning out to be a militant labor—not socialist—government. “One could never confuse Mike Harcourt with Margaret Thatcher,” quips Radler.

Even so, anyone familiar with Black’s operational code knows that difference isn’t going to stop him.