Mills and Reynolds produced an almost unrecognizably improved Ottawa Citizen within a few months, and after a grand relaunch, the newspaper’s circulation began to rise slightly following a decade of decline in one of Canada’s faster growing metropolitan areas.
I suggested to the publisher in Calgary that the oil and ranching capital of the country, the closest Canada has to the ethos of Dallas or Houston, could do without a friendly socialist as editor, who daily debunked the wellsprings of Calgary’s prosperity and the very raison d’être of the city. This was done.
Beyond that, we laid down only a few general guidelines, disabused the advertising team of the notion that we were managing decline, culled fat, and worked with the publishers and editors to improve their products. In less than three years, the straight profit from operations increased from barely $100 million to $300 million, confirming the sense of our gamble on what newspaper franchises in such rich cities as Vancouver, Calgary, Edmonton, Ottawa, and Montreal could do if operated seriously, and the stock price rose quickly by 50 per cent. There were not many further personnel changes, only steady pressure for integrity, balance, good writing, and lively presentation. Canada’s national newspaper company was no longer something to be ashamed of, and almost all of our critics in the Canadian media accepted this fact, however reluctantly. When we consolidated our control over Southam in 1996, Hollinger owned 59 of the 105 daily newspapers in Canada.
Once we were in charge of the company, all those shareholders who had conspired to prevent us from taking control of it joined forces to jack up the price for us. This was fair business, but unctuous cries of shareholder rights were a little hard to take from those people, as they often are.
Our initial effort at a takeover bid brought us up to only a little more than 50 per cent, so we allowed the offer to die rather than raise the price. We wanted Southam’s operating income for our company in order to liberate its dependence on dividends, the ancient curse of Argus Corporation. This required ownership of all the shares: intercorporate dividends are tax-free, while debt interest is tax-deductible, so we needed operating income from which to deduct, for tax purposes, the cost of interest on our debt, thus effectively laying off much of it on the tax collector. We were the victims of our own improvements to Southam’s operating performance. The method we adopted to take out the public was to declare a six-dollar special dividend and then bid at a slightly lower price for the ex-dividend stock. This was thought by some to be devious and by others to be clever, but it accomplished our objective to privatize Southam.
American stock analysts were not as pleased as we had hoped. Concerns were rising over the future of newspapers. We were winding toward the climax of the dot-com bubble. Hucksters and dreamers in the initial Internet-related business could foist almost anything on the stock market and achieve an immediate success, with no attention to business plans. Nor were American investors particularly impressed with Canada. They thought of it as a socialist country and were so America-centric that even a country that to most is largely indistinguishable from neighbouring American states was regarded with skepticism.
PERSONAL DREAMS NOW COINCIDED with business ambitions. So long as Southam had no Toronto newspaper, I was facing the worst of both worlds: denounced as a monopolist while shut out of any real influence in the country. National opinion in English-speaking Canada was largely controlled by the Globe and Mail, the Toronto Star, and the CBC, with a slight assist from the principal Canadian magazine, Maclean’s.
A striking illustration of our powerlessness occurred in 1997. I had Southam commission extensive polling throughout English Canada and in Quebec to gauge support for the official position of appeasing the Quebec nationalists with pre-emptive concessions while ignoring the endless provocations of Quebec’s separatist government. Our polls showed that this response enjoyed only lukewarm support in Quebec and was despised in the rest of the country. There was heavy support, even in Quebec, for the proposal I repeatedly made to successive prime ministers that if any province voted to secede from Canada, any county within that province that voted against secession would secede from the province and remain in Canada. This would have buried separatism once and for all. The publication of these poll results, based on an unusually comprehensive survey, received no attention whatever from the Globe and Mail, the Toronto Star, the CBC, and Maclean’s. It completely undercut the excessively appeasing line they had all been preaching for decades.
For Southam to breach the fortress of the Toronto media would require a new newspaper, an unpromising idea on its face in a city that already had three general daily newspapers. But with local Southam papers in virtually every city in Canada, we had the advantage of being able to print and distribute a newspaper all around the country a good deal more economically than the Globe and Mail. Carving out circulation in the metropolitan area of Toronto, however, would be a challenge.
The existing Toronto newspapers had divided up the Toronto market quite thoroughly. The Sun (of which Barbara had once been the editor) was the low-brow, populist tabloid newspaper, though it had largely forgotten where its natural readership was. The Star, Canada’s largest circulation newspaper for many decades, was a middle-brow, oppressively Toronto-centric, anti-American, soft-left product, with acres of flabbily written pap sniping at capitalism, traditionalism, Christianity, and anything remotely American. The newspaper’s bylaws pledge allegiance to the Liberal Party of Canada. The Globe and Mail passed for a high-brow newspaper. In fact, it was ashen, with little personality, and only five degrees to the right of the Star. It had lost much of the tradition it had had as a writers’ paper and had been largely run out of Toronto by the Star and the Sun. But it had ingeniously hired a few correspondents around the country, printed fifty thousand or so copies in outlying cities, and proclaimed itself “a national newspaper.” This was essentially a scam, but it was carried off almost with the panache of W.C. Fields (a considerable achievement for such an oppressively sober newspaper).
The founding of a new national newspaper headquartered in Toronto was, I thought, a commercial necessity. It would increase Southam’s value by inserting it into the country’s metropolis, giving it national influence, and liberating it from the investors’ perception of Southam as a provincial newspaper company. A new national newspaper would also be a public service and my final try at testing the limits of the Canadian settlement: government always to the left of the United States – higher taxes, more generous social programs, more moral relativism in all things than in the United States.
After considering a few alternatives, I settled on Ken Whyte as editor of what would become the National Post. Ken, a quiet but determined and thoughtful Albertan, had been a good editor of Saturday Night magazine, which we had owned since 1987. He is an astonishingly persuasive recruiter of people, and his ability to find writing talent in the most unlikely places gave us writers and editors with more minority group hybrids than any progressive publication.
He was not supposed to raid elsewhere in our group but could approach British and American employees with a Canadian connection. This produced what Barbara called “the Ken Whyte broadjump,” as he would unearth the fact that someone’s great-aunt or second cousin had vacationed at Qualicum or gone to a Filles d’Isabelle summer camp at Baie-Saint-Paul in Edwardian times.
We devised a novel layout and launched the National Post with great fanfare in October 1998. Its editorial stance, including the placement of stories, headlines, cartoons, and most but not all comment, was intelligent conservative. The paper advocated lower taxes; a more rigorous examination of welfare claims, of the status of the supposedly homeless, and of government transfer payments; and a cessation of any appeasement of provincial separatism. We conducted extensive polling on taxes and published analyses of the sources of tax revenues and of comparative taxing jurisdictions and their economic performances, all original to the national media of Canada.
Apart from the Telegraph, this was the happies
t of my newspaper associations. Whyte is very intelligent and has an excellent sense of humour and devious persistence in his views. His cadre of writers was a breath of fresh air. The National Post was not only an informative and provocative newspaper, it was well written and strong through all departments. Arts were innovative; sports were especially well written. The editorial and op-ed editor was the distinguished commentator and former policy adviser to Margaret Thatcher, John O’Sullivan. He had been editorial page editor or deputy editor of the Daily Telegraph, The Times, and the New York Post, and had succeeded Bill Buckley as editor of the National Review. O’Sullivan was an old friend of Barbara’s and mine and moved into our house in Toronto and lived there for almost two years.
After an early bout of curiosity, the circulation was around 250,000 solid. Promotions pushed it over 300,000. The Globe and Mail had been at around 325,000 and promoted to about 350,000. It held the edge in Toronto, but we crowded or surpassed it in the rest of the country, where we took advantage of our promotional abilities through ownership of local newspapers. Meanwhile, the Globe and Mail also upped its game and became a much snappier product. Coverage was beefed up in many areas, layout improved, and editorial became less drearily predictable. The owners – the Thomson organization – changed publishers early, then changed editors, poured in money, and, after a complacent start and a panicky second reaction, settled into grim trench warfare with no quarter with the new rival.
Almost everyone praised the National Post as a first-class product and a vital addition to the country’s media. Even my old opponents among the Canadian working press acknowledged its contribution and gratefully agreed that Ken Whyte’s hiring practices and my fairly broad notion of what constituted start-up costs had raised salaries among daily newspaper journalists, increased competition, sharpened and reinvigorated the industry, and put a stop, at least for a time, to the notion of the decline of the Canadian newspaper. Still, many of the people who praised the paper read it in waiting rooms or at the office and were reluctant to trade in their old newspaper or buy a new subscription. They didn’t come in adequate numbers.
Though our cost-per-thousand argument was good, and we were pitching a political position to which almost the entire business community was more amenable than they were to the waffling of the Globe and Mail, there was a real reluctance to give the new newspaper advertising. But the reticence went beyond that. The newspaper culture in Canada did not have the roots it had in Europe, and the National Post struck too non-conformist a note for many Canadians. What many took to be adoration of America was simply irritation with Canadian smugness, and with the national media’s addiction always to claim superiority to the United States in all intangible and human qualities. We never advocated absorption into the U.S.; we advocated an overthrow of the Toronto-centric, narcissistic Canadian fantasyland of moral exaltedness, and successful friendly Canadian competition with the U.S., which I never doubted Canada could conduct if it had the courage to try. This was largely why I supported free trade, as a confidence-building measure for Canada, not because I thought it an economic panacea.
Legends arose that Whyte was monstrously extravagant and that the operating costs of the National Post went vastly over budget. It became an accepted fable that Whyte sent correspondents all over the world for two-day assignments, that the National Post’s anniversary parties were bacchanalian celebrations of crushing expense. In truth, the annual parties were spartan affairs and far from extravagant, offering only drinks and rudimentary food. The dancing was more than the usual spectacle given the pulchritude and panache of many of the female staff. There was only slight incidence of Whyte spending too much on correspondents, though it must be said that if he had been a little less of a perfectionist, the paper would have been 2 per cent less interesting and perhaps 5 per cent less expensive to own.
The cost of launching the National Post and sustaining it through the first two years did not greatly exceed expectations. After the first year, I was fairly confident that the National Post was losing less than the Globe and Mail. After a couple of years, the Thomson Corporation sold 70 per cent of the Globe and Mail to Bell Canada, which bought the CTV television network at a price so exaggerated that the head of the company, Jean Monty, was let go for his extravagance. Southam was now a more valuable property because, finally, it had a serious voice in the Toronto market. The Economist rightly called the National Post “the most successful launch of a new newspaper since World War II.” Launching a paper was a risky project, but I had combined two ambitions: to create additional value for our Canadian newspaper group and to create an intelligent voice for the Canadian moderate right. This meant a different approach to Canadian public affairs than the old and tired consensus, which like all such inflexible stitch-ups had long since become a joint venture between those addicted to exploiting its obsolescence (the separatists and provincial decentralizers) and those addicted to masquerading as benefactors, with decennial levitations to the status of self-acclaimed saviours of, in this case, Canadian Confederation.
AS OUR COMPANY GREW, we had to reduce debt. This could be done only by issuing stock, which would have been punitive at the current unrepresentative price, or by selling assets. The strain of constantly conducting a two-front war – one in quest of adequate operating results and frequent acquisitions and the other to ensure that the chain of control was not threatened by the debt burden at any point – was very wearing and often preoccupied me. As long as the Canadian banking system relied on client relationships and bet on the client, companies such as ours would be fine, as we never overpaid for assets and never financially mismanaged them. None of the many banks we had dealt with in many countries had done anything but make money with us.
We took advantage of the low stock price as best we could by steadily buying in and cancelling shares, but there were limits to how much money was available for such a purpose given the various loan conditions (covenants) we had. Our relations with note and bond holders were excellent. We issued paper at higher interest rates than premium issuers like the federal government, because we were considered an aggressive company, but didn’t have to pay a large premium for risk as junk bond issuers did. With assets of our quality, there was no chance of their losing money with us, and our instruments always traded at well above par. But the conditions normally stipulated by buyers of our long-term debt would be tighter than we would find comfortable if there were a downturn.
Later on, we sometimes needed to sell assets to meet obligations. This didn’t endanger our control of the company as long as we held all the super-voting shares, but it was in some respects self-sacrificing. A smaller company meant reducing the size of our management fee, which was largely used to pay interest in the holding companies and secure our stock position in Hollinger International, the operating company. Our aim was to buy in shares in order to be real proprietors, not just “owners” through gerrymandered super-voting shares. Super-voting shares are common in the newspaper industry (The New York Times Company, Dow Jones, Associated Newspapers, the Washington Post, and News Corporation all had them), but given attitudes to newspapers, the unenthusiastic response of some shareholders to investment in the product for long-term gain, as well as our dependence on increasingly fickle lenders, I thought it prudent to have as much of the company as possible in our hands. This approach – buying back shares and holding a large block of single-voting shares against substantial borrowings – has been represented by some as retrograde. In fact, this approach was like stock options, except that we accepted the entire downside risk; we elected to allocate more than half of our salaries to pay interest on loans secured by single-voting Hollinger International shares that were necessary to be large-equity participants but not to sustain ourselves in control of the business. This was a vote of confidence in the company and in our ability to operate it to the benefit of all shareholders.
However this was also the root of much of my trouble: my determination not to mimic the sort
of sham ownership I had seen in the original Argus Corporation led to a vulnerable financial situation that attracted predators. My instincts of financial survival and industry trends were well developed and informed by strenuous vigilance, but I didn’t have a cushion against a thunderbolt from an unexpected quarter. In commercial as in other matters, rapid movement is a good defence as long as the enemy’s fire is not too accurate, in which case, the fate of H.M.S. Hood opposite K.M. Bismarck awaits. I smelled danger, but couldn’t see any unmanageable vulnerability.
As the Internet evolved, it had become impossible to generate any enthusiasm for newspapers in the investment community. Newspapers could be sold at twelve times operating income, but newspaper stocks were discounted and were often traded at seven or eight times net profit, a much smaller base figure than operating income because depreciation and taxes were deducted. This made it possible to buy in and cancel shares for much less than the underlying values of the assets if they were sold as going concerns. Value would steadily accrue to the continuing shareholders as the company shrank itself, cancelled shares, reduced debt, and retrenched to its best assets. This was my strategy for dealing with improvident times, and it worked very well, almost to the end. There were also increasing frictions with some institutional shareholders who viewed the tangled structure we had accumulated to minimize taxes as impenetrable and even sinister.
I never lost sight, even if most observers did, of the fact that all that the controlling shareholders had put in a business that was now the third largest newspaper publisher in the Western world (after Gannett and Murdoch’s News Corporation) was $2 million worth of my father’s Argus stock, net of minority interests. And there was some debt against that. All I had invested personally in the business was the $500 I paid Peter White for a half-interest in the Eastern Townships Advertiser in 1966. What I inherited in what became Hollinger from my father had had a value, net of debt, and provincial succession duties (which required more than twenty years to settle), of about $1 million.
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