by Elaine Dewar
Stoddart said that when the M&S gift/sale was announced, he had been angry about two things: first, that he thought it broke Canadian law about who can own a Canadian publisher, and second, because Bennett had claimed to have offered him the company when no such thing had occurred. “Avie was not happy with me—but he got his deal done. He got his money back and he got around the Canadian government.”
“When I was head of the Association of Canadian Publishers,” Stoddart continued, “we lobbied Ottawa for a tax credit system, exactly what the U of T did here [issuing the tax credit receipt to Avie Bennett for his gift]. If you wanted to donate, it would be as if you invested in a cultural industry, but you’d get a tax credit for it, big or small. I saw Herb Gray, saw Sheila [Copps], saw the Minister of Finance then, Paul Martin, with two advisors and their answer was, we have austerity and no tax credits for anyone. That’s why the Canadian publishing companies weren’t worth anything. We could have done generational transfer if people could invest in return for a tax credit.”
As Stoddart talked, Marc Côté burrowed deeper into the statements. He paid close attention to those describing events in 2001 and 2002. They both showed net revenues from sales of about $11,600,000.347
“That was the last year of General,” said Stoddart. “We did $100 million in 2001, so, of all the publishing and distribution of our books, of that, at least $50 million was for Canadian books. The rest of the $50 million was from the ones we licensed as distributors of foreign books. Just for Canada.”
“But all of M&S was just this,” said Côté.
In other words, the stated value for M&S in 2000, was, in Côté’s view, a fiction. Random House had paid $5.3 million for 25% of the shares, a minority position. Ronald Scott had determined that this was a price paid in the open market by a third party at arm’s length. Scott had suggested another way to measure value would be to multiply annual net sales by 1.25. But the net sales shown for the last six months of 2000 ($8,047,415), could not just be doubled to get the approximate net sales for the entire year. Net sales in the first half of any bookselling year are much fewer than in the second half. The first half is when returns from the previous Christmas sales season pour back into the publishers’ laps. In addition, by the last half of 2000, M&S was a smaller company than the M&S of 1999. Bennett had retained the agency business. That meant the annual sales for 2001 were a better reflection of the true value of the company that Random House invested in.
When I multiplied $11,600,000 (the net sales for 2001) by 1.25, it came to $14,500,000. In other words, by that measure, the whole company was worth less than the value of the tax credit receipt issued to First Plazas by the U of T for 75% of the company. Random House’s 25% was therefore worth about $3.6 million, not $5.3 million. It is not possible that the Random House executives who purchased these shares failed to understand the value of what they’d bought. With their eyes wide open, they had paid a very large premium. Why?
It had to be because they knew they were getting de facto control of a competitor, one that would be able to apply for grants and tax credits unavailable to Random House.
The draft financial statement for 2005 showed that M&S had non-capital losses “available for carry forward of approximately $4,351,000 to reduce income taxes payable for years up to 2015.” These tax losses had value. When Macfarlane, Walter & Ross was amalgamated with M&S in 2004, its losses became M&S’s losses and could be used to offset taxes owing, if ever a profit materialized, even up to ten years in the future. The same applied to Random House: it could get benefit from the loans it had made to M&S through amalgamation. But in order to get permission to absorb M&S, the U of T had to refrain from calling that ‘put’ until the right political moment. It would be easier to get permission to transfer the University’s shares of M&S from a government of the right political persuasion—a Conservative government rather than a Liberal one. After amalgamation, M&S’s losses could soak up taxes owing on profits made by one of Random House’s other wholly owned entities. M&S had, by my estimate, won at least $14 million in grants from two governments during the 11 years when the University held 75% of its shares. When it became a foreign-owned entity in 2012, Random House could no longer apply for grants, but it was certainly entitled to make use of those losses and reduce taxes accordingly.
In other words, the Canadian taxpayer paid either way.
Côté and Stoddart kept returning to the subject of the Stoddart/General bankruptcy. Who could blame them? Though both M&S and the Stoddart/General companies had ended, their endings had very different effects. For one thing, Avie Bennett remained a hero, and Stoddart did not. For another, the Stoddart/General assets were dispersed and the brands nullified. Because there was no bankruptcy of M&S, but absorption, its brand, its backlist and its losses became useful assets for Penguin Random House and its owner, Bertelsmann.
Just before the bankruptcy, when they were still trying to reorganize, Stoddart told me, he went to Ottawa and asked if he could please sell his companies to foreigners. He went to see Michael Wernick, then still in charge of foreign investment review in the department of Canadian Heritage. As he remembered that meeting, Wernick told him the government could not allow him to do that. “He said it would upset another deal,” said Stoddart. That other deal, in Stoddart’s view, was Stoddart’s sister Susan’s sale of Distican to Simon & Schuster. Distican was a paperback company/agency business Susan Stoddart took over when the Stoddart siblings split the family business in 1984 and went their separate ways. Simon & Schuster’s works were distributed by Distican in Canada. According to Roy MacSkimming in the Perilous Trade, Simon & Schuster threatened federal officials that if Canadian Heritage didn’t permit it to buy Distican outright, it would simply stop distributing Simon & Schuster books in Canada. According to MacSkimming, federal officials blinked. The explanation offered to the public for permitting the sale of Distican to a foreign entity was that officials were trying to save 80 jobs. The transaction was announced in November, 2002,348 about four months after the General bankruptcy proceedings were finished349 and the fuss over whither Canadian publishing had died down.
“After I was done,” said Stoddart.
At that funeral for Jackie Hushion, Stoddart said, he ran into Allan Clarke who had once run the publishing policy section in Canadian Heritage, the same Allan Clarke recommended to me by Sheila Copps. Stoddart asked Clarke who he worked for. Clarke replied, Michael Wernick.
“I asked why he let the M&S deal through,” said Stoddart. “He shut down immediately. He said ‘you don’t want to go there.’”
At that point, I closed my notebook. But later, I had to ask Stoddart: had he ever been involved in politics, was he a known supporter of any party?
He said no.
17
Harlequin
I picked up OpEd page of the Toronto Star one morning in late January, 2016, and read the text equivalent of a one-way shouting match. John Honderich, Chairman of Torstar, owner of the Toronto Star and many other media properties, blasted away at Paul Godfrey, a well-known supporter of the Conservative Party and the CEO of the very troubled Postmedia Network Inc. Postmedia had been created to buy the Canwest newspapers out of bankruptcy in 2010. Then it bought the Sun chain of newspapers in 2014.350 Godfrey had been giving speeches to put a better face on his just-announced merger of the newsrooms of Postmedia’s formerly “competing” broadsheets with the Sun’s tabloid papers in Calgary, Edmonton, Vancouver, and Ottawa.351 In the process, Postmedia had also let go 90 staffers,352 including the first female Editor of the Edmonton Journal.353 Godfrey had declared that the remaining staff journalists would write and edit for both papers, somehow employing different voices. Godfrey had also tried to position Postmedia as a saviour of Canadian journalism, stating that no other Canadians had made an offer to buy the Canwest assets out of bankruptcy. Had it not been for his group, backed by Golden Tree Asset Management, leader of a gro
up of US hedge funds, those papers would be defunct.354
Nonsense, Honderich shot back, Torstar had offered $800 million, which wasn’t accepted, and others had offered too.
There was a larger fight behind this one: Godfrey had also been signalling to the brand new federal government that something had to be done to free Canadian newspapers from the Investment Canada Act and the Canadian-advertiser provisions of the Income Tax Act. According to Michael Lewis, writing in the Toronto Star alongside David Olive on the same subject, two years earlier, Postmedia had hired a lobbyist to press this case in Ottawa, and Godfrey had met with the new Prime Minister to ask personally for changes.355 The point Honderich made in his OpEd was that Postmedia had handed over “virtual” control of the largest chain of Canadian newspapers to foreign interests due to the huge debt it owed to New York hedge funds. Godfrey acted as their Canadian “front,” Honderich said, implying that this should not have been allowed.356
Doug Gibson had said the same thing.
Hey, I said to clever husband over breakfast that morning. This Postmedia situation sounds like the M&S deal. But isn’t Honderich living in a glass house? Torstar sold Harlequin to HarperCollins for $455 million.357 How did he get that past the Investment Canada Act? At least Godfrey could argue that the Canwest was in financial distress when Postmedia borrowed from the hedge funds and bought the assets. That was not the case for Harlequin.
And then I remembered that Prichard had said he’d had something to do with getting the Harlequin sale through Ottawa. At first, I’d thought I misheard him because the sale happened in 2014 and Prichard left Torstar in 2009, and he’d also said something about dealing in Ottawa on behalf of Penguin regarding the merger with Random House. Could he really have argued for three of these deals? And Honderich had not mentioned the Investment Canada Act in his OpEd. Why not?
I emailed Honderich and asked for an appointment, telling him what I wanted to discuss. The next day, Honderich said yes.
There was only a thin skiff of snow on the streets, and a few slicks of ice in the shadows as I drove down Bathurst to Queen’s Quay and the Toronto Star building. I hadn’t been to the waterfront in ages: I’d been spending too much time in hospital rooms, enveloped in a surround sound of breaking glass, relentless coughs, and the endless beeping of the machines.
I somehow made the turn too soon, ending up on Fleet Street, which I took as a sign. I went around in a circle and tried again, this time ending up on the portion of Queen’s Quay reserved for streetcars. Yikes! I had been distracted by memory, a dangerous form of travel. I once worked in a puppet theatre over on Centre Island and took the ferry there from the terminal on Queen’s Quay every day. As I tried to maneuver back to the legal side of the road, my mind fled across the lake in that creaking boat: I smelled the mildewed life jackets, the cool dank water, heard the swans honking at the water’s edge, saw the avid hands of children reaching for their tickets at the theatre’s box office. I tried to yank myself back into real time by locating the ferry terminal as I drove—it was there, somewhere, but where? Everything seemed so overbuilt, so overblown, so not as it once had been. I was driving through the heart of a brand-new principality, a Monaco of reflective glass, when I spied the Star building, which seemed as out of place, as out of time, as me.
It’s made of concrete in a modified brutalist style. It was built by the Reichmann’s Olympia & York Developments for Beland Honderich, then the Publisher of the Toronto Star, and John Honderich’s father. The Honderich family owns 14.8 percent of the Voting Trust which owns about 44% of Torstar.358 Control of the Trust is shared among the other four management families who acquired it after the Star’s founder died. Though Torstar shares trade publicly, those shares with the right to vote reside almost entirely within the Trust: it controls 94.7% of them. I’d interviewed Beland Honderich years before about the Reichmanns. He’d been open and easy when describing his dealings with them when so many others in town had refused to talk at all. Because: he was Beland Honderich, the Publisher of the Toronto Star, and he was afraid of no one.
I parked the car and walked into the main lobby where an ancient linotype machine rears up on a pediment like a post-industrial sculpture. The place felt empty. Torstar, like Postmedia and all the other major media properties in Canada, had not been doing well. Revenues were down 9.9%. It was about to announce a quarterly loss of over $53.5 million, and another $23 million loss would follow in the next quarter. It would slash the dividend twice, too. It had announced the closure of several small newspapers, such as the Guelph Mercury, along with its state-of-the-art printing plant up in Vaughan.359 The Toronto Star’s Publisher, John Cruickshank, would step down in a few days to be replaced for a short time by the CEO, David Holland, who would then move on to retirement himself.
Newspapers present a great many more Canadian stories to a great many more Canadians than book publishers. These articles may not be so well written or so complex as books, but to understand what is going on in Canadian communities, and in the community called Canada, there have to be communally read publications like the Toronto Star. An argument can be made that newspapers invented democracy and vice versa, that the shared experience of reading about current events and personalities creates a public commons of shared knowledge, enabling voters to make choices. This is why there was a rule forbidding the sale of Canadian newspapers to foreign interests long before the Investment Canada Act was passed. Yet like leading Canadian book publishers, major newspapers have been dying, and for the same reasons—the Internet, Amazon, Google, online publications, social media platforms, YouTube, free online classified advertising sites like Kijiji. Charts of Torstar’s annual revenues over the last decade show a downward trend, along with a few dead cat drops. Yet the Star in particular has been vital to public life in this country. Its investigations have launched a vast number of policy debates that resulted in major changes in law and social practice and even in our most basic beliefs about what goodness and fairness mean. Its feature stories have led to all kinds of important careers being raised up or dashed down. I cannot imagine what would happen to Canada if the Star was sold to Rupert Murdoch, or if a foreign hedge fund got hold of it by means of high interest debt that grows like kudzu, the situation of Postmedia.
I took the elevator up to the sixth floor where the Torstar executives have their offices. While I waited on a couch in reception, I gazed at the rows of framed cartoons painted for the Star by that immensely talented social critic/artist Duncan Macpherson. I’d forgotten how clever he was, what a meat cleaver of a mind he had. There was one image of enduring truthiness that made me laugh out loud: a little Canadian Prime Minister dandled like a baby on the huge, fat knee of a Texan in Stetson and boots and labelled Big Oil.
Honderich appeared and walked me to his office, a nice space with a desk angled to the light and a stunning view of the green/blue lake heaving under an icy skin. A poster from Fritz Lang’s Metropolis broods on one wall. He looks a little as his father did at the same age—bow tie, grin, straight thick greying hair. He is heavier than when we first met years ago in the Star’s Ottawa bureau, its tiny rooms half buried in old newspapers. By then, he’d gotten a law degree at the U of T, and then gone into the family business, working first for the competition, the Ottawa Gazette, then for the Star in Ottawa.360 At that point I was a freelancer and was staying at the home of his colleague, author and journalist Mary Janigan, because I was working on a story for a magazine that had a limited expense budget. (In the good old days, Canadian magazines still had expense budgets.) Janigan lived near the canal in a small house with a slobberingly friendly dog and a constantly ringing telephone because the Star was a 24-hour operation and she was always on call. Except when she stashed the phone in the fridge so she couldn’t hear it ring.
I’d told Honderich in my email that I was working on the story of how M&S ended up in the hands of a foreign owner, and I needed to know how Torstar manage
d to sell Harlequin Books to HarperCollins without falling afoul of the Investment Canada Act. I’d mentioned that Prichard had said he had something to do with it, and I needed to check facts. So we got right to it.
Anyone who works in newspapers knows there was a civil war for control of Torstar, and the Star, between Honderich and Prichard, which Honderich appeared to lose early in 2004. To the dismay of his fellow journalists, it was announced in January of that year that he would step down as Publisher in May. There had been disagreements over cost-cutting versus new investment, about backing John Tory for mayor (Prichard) versus David Miller (Honderich and the Star) and over coverage of the Middle East. The new, Prichard-appointed Publisher who took Honderich’s place was Michael Goldbloom, formerly of the Montreal Gazette, who Prichard had first brought in to the Star as Deputy Publisher and strategist. The new Editor was Giles Gherson.361 The next year, retired Supreme Court Justice Frank Iacobucci, Prichard’s friend and former professor, replaced Evans as Torstar’s Chairman.
After he left, Honderich collected an Order of Canada and an Order of Ontario and served on advisory commissions. But eventually he also mounted a palace coup by organizing the families that control the Torstar Voting Trust. In the recession of 2008, the investments Prichard had made in CTVglobemedia and Black Press required major write downs and a dividend cut. By 2009, Honderich was Chairman of the Voting Trust, and then Chairman of the Torstar Board. The Honourable Frank Iacobucci was out, and Prichard was too.362
I almost expected Honderich to say that Prichard had nothing to do with selling Harlequin Books to HarperCollins. Instead, he began to praise Prichard for his insight and foresight. To frame this story, he referred to the Baie Comeau Policy, and how Prichard, as early as 2007, had wisely decided that they needed some sort of advance opinion from Ottawa that would allow Torstar to sell Harlequin Books if they had to. And so Prichard went to Ottawa to ask for a Ministerial Letter of Opinion that could not be retracted by subsequent Ministers if the facts remained the same. Sound familiar?