The Nation’s Business

How Power trumped the Royal Bank

Peter C. Newman September 1 1997
The Nation’s Business

How Power trumped the Royal Bank

Peter C. Newman September 1 1997

How Power trumped the Royal Bank

The Nation’s Business

Peter G. Newman

Last week’s bold takeover by Power Corp.—through Great-West Life—of the London Insurance Group is typical of Paul Desmarais, who still guides the Montreal conglomerate’s corporate strategy.

The senior Desmarais, who turned over the operational side of Power’s management to his sons, Paul and André, over a year ago, is one of the most remarkable giants of Canadian business. The few people who deal with him directly—and there have been even fewer since his recent heart bypass operation—tend to look at him with the awed respect climbers give a mountain face. He is very much larger than life, and at 70, remains fully in charge of his worth and his business.

Earlier this year, I spent a couple of days at his Palm Beach, Fla., home, interviewing him. From a distance,

Desmarais looks as if he has hardly aged in the past two decades. It’s all still there: the slight stutter when he is emphasizing a point, the long, sensitive fingers, and the elegant carriage of his gait. Up close, his features are less well-defined—the man seems to be operating at no less intensity, but at slightly less volume.

But even as he enters his 70s, Desmarais can’t control his enthusiasm. When I told him about some high-level corporate gossip I’d heard, his eyes widened, his eyebrows shot up and his mouth opened in astonishment. Instead of the staid corporate presence he had been a few seconds before, he looked like a backwoods primitive, witnessing the miracle of Polaroid photography for the first time. “Well,” he exclaimed. ‘What do you think of that!”

The sudden lunge at London Life, after the Royal Bank of Canada assumed it had the deal sewn up, is typical of the man and his methods. It’s a highly significant move, because this is the first major expansion in Canada the Desmarais group has undertaken in more than two decades. Since his orgy of mergers and buyouts in the 1970s, Desmarais has concentrated on buying up control of enterprises in Europe, where the assets of his burgeoning empire now exceed $100 billion.

Since he stopped investing in Quebec during the early 1980s, where his only significant holdings that remain are a dozen small radio stations and a string of newspapers including La Presse, his Canadian base of operations has shifted to Winnipeg. He controls the Manitoba capital’s Investors Group Inc., the country’s largest mutual fund operation (assets of $30 billion), which would be a major investor in London Life if his takeover bid eventually succeeds. Winnipeg is also home to Great-West Life, which has assets of more than $40 billion under administration, and has become a cornerstone of the Desmarais operation.

A tipoff to Great-West’s significance within the Power group is

that Desmarais usually assigns just two or three of the holding company’s directors to serve on the boards of Power’s subsidiaries. But the Great-West board includes nearly the whole Power house: not only Desmarais and his two sons, but Power Financial Corp. CEO Robert Gratton, vice-chairmen Michael Pitfield and Michel Plessis-Bélair, and deputy chairman Jim Burns (who is a Great-West alumni), as well as Power director Don Mazankowski.

As in all his dealings, which have allowed Desmarais to fastfeed his financial empire from a bankrupt bus line when he was growing up in Sudbury, Ont., to revenues of $7 billion in 1996, the Desmarais move on London Life has been exquisitely timed. The bid takes advantage of the public sentiment against the Big Six banks taking over even more of the country’s financial services.

The insurance firms are among the last holdouts. Great-West and London Life also enjoy much greater synergy in their corporate cultures than with the chartered banks. Their areas of specialization—London is largest in individual life, while Great-West leads in group insurance— meld beautifully.

Paul Desmarais’s takeover of London Life shows that this remarkable giant of Canadian business retains his uncanny touch

The triumph of Desmarais over the Royal Bank is particularly fascinating because that was the bank that gave him the credit to start Power. “I should have bought the Royal a long time ago,” Desmarais joshingly told me at Palm Beach. At one time, in the 1970s, Earle McLaughlin, who was the bank’s chairman, and Desmarais were good friends, but kept kidding they were going to fire each other. “Earle,” Desmarais recalled, “who was a Power director, told me once that if I didn’t have those special 10 for 1 votes to maintain control, he would have voted me out long ago, and I told him that if the banks didn’t have that God damn 10-per-cent [ownership limit] rule, I would have fired him. And then we both laughed.”

This time, no one from the Royal Bank was laughing. The Desmarais style is to treat each new business deal like an election campaign. As negotiations progress towards their climax, he takes on the urgent persuasiveness of a politician coming up to polling day. He has the knack of making people believe in his vision, even when it’s against their self-interest. “Paul is probably the only businessman in Canada who can make a pitch to a board of directors for the takeover of their own company, and leave them in heat over the prospect,” said a close observer of his methods.

Desmarais’s greatest talent has always been his uncanny timing. He can sense changes in the political winds and shadings in the economic skyline, read the entrails of each developing situation, and strike at the appropriate moment. The capture of London Life proves Paul Desmarais hasn’t lost his touch.