Shareholders finally get a hearing in an epic battle
Shareholders finally get a hearing in an epic battle
WARREN HURST is a little stooped in the shoulder now. He speaks softly and carefully and sometimes with cunning. For almost 20 years, he’s been embroiled in an epic battle with the government of Quebec and, at 76, he’s getting a little tired, he admits, sitting in his bright, comfortable living room. His home is a bungalow on the windswept shore of the St. Lawrence River in the Thousand Islands, where Lake Ontario ends and the river begins. The long side of the house, facing south, is almost all window, and on this cool June day, the water outside is a steely grey. Somehow, it seems to match Hurst’s
steely resolve. Tired as he might be, he’s not about to give up. Not now. “I do intend to carry on,” he says slowly, surely. “I’d really be letting down people who have been very supportive.”
In the fall of 1977, Hurst invested $36,000 to buy 1,000 shares in Asbestos Corp. Ltd., then the second-largest asbestos mining company in Canada. It boasted a strong balance sheet and paid an attractive dividend. More importantly, Hurst knew Quebec intended to nationalize the company, which was controlled by an American conglomerate, General Dynamics Corp. The Virginia firm owned 55 per cent of the
Asbestos shares, and Hurst, rightly, expected Quebec would make a deal to buy that majority stake. Then, because it was standard practice, and because Quebec had promised early on to offer an equivalent amount to all the other shareholders, Hurst expected he’d have the option to sell at the same price. Wrong. He thought he’d make a tidy profit. Wrong again.
Even though Quebec paid General Dynamics a hefty premium to take over Asbestos Corp., the follow-up offer to small investors never materialized. The stock promptly took a nosedive. Within days of the announcement of the deal on Nov. 9, 1981, Asbestos shares had lost 47 per cent of their value, sliding under $20. They would eventually go as low as $2.50, and today trade around $3. Little did Hurst know, when he first purchased the stock at about $36 in 1977, that what looked like a good business story would
turn into a never-ending saga—enmeshed not only with his interests as a minority shareholder, but with Quebec’s historic struggle for greater autonomy.
Last month, the Quebec securities commission heard Hurst’s case, or more accurately, the case of the Committee for Equal Treatment of Asbestos Minority Shareholders, of which Hurst is the cochairman and driving force. Astonishingly, it was the first time the essence of the struggle—whether Quebec should pay the minority shareholders the same sum received by the American owner—has been addressed. A political hot potato, this is the longest-running dispute, ever, over securities law in Canada. If Hurst’s side wins, it could mean a windfall of up to $300 million for the minority shareholders, according to their estimates.
To understand the case, bear in mind that the autumn of 77 was just a year after René Lévesque and the Parti Québécois were first elected. Those were heady times in Quebec. As much as the Péquistes were met with disdain outside Quebec (and, in pockets, inside), they had captured the collective imagination of Quebecers with a plan to create a new, independent society based on justice and social democracy. Even before the PQ had vaulted into the seat of government, the Quiet Revolution was well underway. Players like Jacques Parizeau, then a bureaucrat in Jean Lesage’s Liberal government, had created the groundwork for a diverse Quebec economy. Parizeau was one of the masterminds behind the creation in 1965 of the Caisse de dépôt et placement du Québec, which manages the public service pension fund and whose mandate then, as now, was both to build wealth for retirees and to use its heft to contribute to business growth in the province.
By 1977, Parizeau was the PQ minister of finance, and it fell to him to strike the deal to put control of Asbestos Corp. into Quebec’s hands. The province, already a major asbestos producer, also wanted to develop post-extraction businesses—95 per cent of the raw product was shipped elsewhere—and ultimately boost employment in the economically depressed region south and east of Montreal where the mines were located. It took four years, but by 1981 Parizeau had a monumentally complex agreement, including derivatives, that unfolded over the following five years with General Dynamics. The shares—for which Quebec paid up to $110 each (because the deal was so complicated, the amount is disputed)—were placed in a newly created, state-owned company called Société nationale de l’amiante. No follow-up offer was made to the minority shareholders, neither at the time the deal was announced in 1981 nor when it was finally completed, in 1986. That was when Hurst, himself a senior investment broker at the time, locked horns with the powers that be of Quebec.
The case has snaked through the regulatory and legal systems of both Quebec and Ontario and has even gone up, twice, to the Supreme Court of Canada. In 1988, the Quebec securities commission refused to hear it, maintaining that the govern-
ment, as the Crown, had immunity. The Ontario Securities Commission, on the other hand, agreed to hear it and even said in its 1994 decision that Quebec’s actions were “abusive” and “manifestly unfair” to the minority shareholders. But it very neatly sidestepped the task—and, in the year before the Quebec referendum, avoided the hugely sensitive optics—of rapping its neighbour’s knuckles by agreeing with Quebec’s lawyers that the province hadn’t been “abusive of the integrity of the Ontario capital markets.” The upshot: Ontario’s commission had no jurisdiction. Last year, the Supreme Court agreed with the OSC, crushingly for Hurst, that the regulator was the wrong body to go after Quebec for compensation. (When the case previously reached the Supreme Court, in another appeal over jurisdiction in 1993, the justices refused to hear it.)
Now Hurst has another chance, at the Quebec securities commission. Last month, he gamely sat through a day-anda-half-long presentation by his committee’s lawyers. André Blanchet, the lead counsel, calmly and methodically worked his way through four big binders of contracts, announcements, company memos and previous decisions of the various legal and regulatory bodies, to tell the story of what he called “the equivalent of civil fraud.” Blanchet’s voice remained steady throughout, but, as he reached for yet another document, his hand would tremble slightly.
The room heated up, though, when Steve Lachapelle, Blanchet’s co-counsel, talked about the outcome of the QuebecGeneral Dynamics deal. Unlike Blanchet, Lachapelle spoke loudly and, glancing only occasionally at his notes, delivered stinging criticism of the PQ government after it was re-elected in 1981. “I hate what I’m going to say,” he said, “but the longer the government was in office, the less integrity it had.” The government, along with General Dynamics, was a “larron” Lachapelle declared. The term translates into English as robber, but in Quebec— with its still-acute Catholic sensibilities—it refers to the thieves who were crucified with Christ at Calvary.
At this, Pierre Bourque, the lawyer for the Société nationale de l’amiante, jumped up. “I object forcefully,” he said. “My clients
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were robbed,” Lachapelle responded.” The presiding commissioner, after whispering with his fellow regulators, told him to use more suitable language. Lachapelle finished by telling the panel the actions of the Quebec government reminded him of sunshine and his grandson’s ice cream cone. “The government made the value of my client’s shares melt away,” he said. “And they did it with contempt.”
ASBESTOS HAS BEEN extracted in Quebec since 1878, when Canada’s first commercial asbestos mine opened in Thetford Mines. Within a few decades, three major sites were clustered in the Eastern Townships—including the town named Asbestos. But what really put the region on the map was the infamous strike of 1949. In February of that year, protesting abysmal conditions, 5,000 workers set down their tools at three mining companies. The battle was as much against the province’s Duplessis regime, and its antilabour laws, as it was against the corporate bosses. Scabs were brought in to work the mines. Clashes between strikers and the police turned violent. The then-powerful Catholic clergy, some risking their ecclesiastical careers, sided with the miners. And
the strike gave some of Canada’s leading politicians and labour leaders their first big taste of political battle, including Pierre Trudeau and his two fellow wise men, Jean Marchand and Gérard Pelletier. After four months on the picket lines, the workers gained little—only a small salary increase, and not even an agreement to eliminate asbestos dust in the mines. But Trudeau later wrote that the strike was a seminal moment in Quebec’s history, marking the end of the traditional authoritarian, rural and Catholic French-Canadian world.
Not quite three decades later, the PQ again saw the industry as an instrument of social change. But the nationalization occurred when the disastrous health dangers of asbestos, both to miners and to consumers, had became increasingly apparent—and just as the bottom began to fall out of the market. In 1992, the government finally got out, selling its Asbestos Corp. holdings. Some argue that the poor asbestos market was the reason for the drop in share price. But not Hurst. For him, the government could have responded to the collapsing market like other own-
ers of asbestos companies, and laid off employees. “People who held minority shares in Asbestos Corp. had a share in a welfare agency,” he says bitterly. “Today, there’s nothing left in the value of the share, other than our effort.”
If that effort succeeds, among those who would split the potential nine-figure proceeds are some major stock market players, including, intriguingly, the Caisse de dépôt. Through the years, the Caisse has always refused comment on its holdings of Asbestos Corp., but it is believed to hold 260,000 shares worth, potentially, $68 million.
BOURQUE, the Crown corporation’s lawyer in this case, is reluctant to talk publicly before his day in front of the commissioners, due in September. Still, he couldn’t resist dropping a clue as to the line of defence he’s going to take. “I’ve written this on my notepad,” he said. “How do you translate into proper English, La bullshit?”
Hurst fears the strategy of his opponents is to wait him out. In 1994, lawyers for the Quebec government inadvertently sent the plaintiffs a memo that said Quebec’s strategy was to noyer le poisson, or drown the fish, an expression that means to wait until someone dies.
Hurst insists he’s not in the battle for the money, which could amount to as much as $2.6 million for the 10,000 shares he now holds, acquired at different times and varying prices. “It’s for the principle,” he says. Hurst allows that he worries about his age—“I’m 20 years older than when we started”— and admits with a nervous laugh that his “senior moments” seem to be more frequent.
Hurst has reason to be concerned. Unless Quebec makes the unexpected move of offering to settle, this case is likely to continue to drag on. If the regulator sides with the minority shareholders, it would forward the case to a court that would have the power to order Quebec to pay up. But if history provides any lessons, the upcoming ruling by the securities commission will likely be appealed, regardless of who wins. The legal documents will pile ever higher, like the tailings of an asbestos mine. And the case, like the lethal fibre itself, may outlive many of its hapless combatants. Iffl
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