Conrad Black

by A Matter of Principle

  Finally, an offer arrived on our London house. It was a fairly full offer, and at more than £13 million, a heavy profit on what I had invested in it. This should be the end of the personal financial problem. Now I could certainly stay the course to crush out the Walker-Carroll-Kelly insurrection and ride on to the American share takeout and SEC settlement. I didn’t want to sell the house, but Barbara had never liked it. The house was in a location she loved (near Kensington Gardens, where she often walked), but it was too large and didn’t have a sit-in kitchen, something she apparently liked. She had retreated to living almost solely in her light-filled dressing room and in her top-floor workroom, which overlooked roofs and gardens and was equipped with a refrigerator, microwave, and kettle to keep everyone at bay. The house was hideously expensive to operate and had become symbolic of a life that was over. It was time for a new, but not an inferior, start.

  Negotiations over selling the house, always a laborious business under British rules, toed and froed through January and February as we inched tortuously through the minefield Walker and Carroll and their counsel laid on the path to privatization – and as we sparred with the SEC.

  Walker had asked Paris for terms of settlement with Hollinger International and Hollinger Inc. to end the cross-litigation between the companies. When settlement terms were made public in February, Paris – true to form and luxuriating in his flush pay packet ($17,000 a day), which aroused protest even from Jereski, responded to Walker that a $175 million payoff from Inc. to International might do it. Walker showed no recognition of what I had been dealing with from these people; he thought it was just “two dogs sniffing each other.” Part of the metaphor was accurate but unflattering to canines; Paris was lifting his leg, not advancing his snout (though he was pretty agile at that also).

  Walker and Carroll sought a settlement with the SEC for Hollinger Inc. Nate Eimer came eagerly to Toronto to sell his settlement in mid-February. The terms were ostensibly improved to the point that if Hollinger Inc. would merely give back the so-called improperly authorized non-competition payments received from Hollinger International in 2000 (which it had done with my money) even if it won the appeal about them in Delaware, the SEC would ask no penalty and would agree to an overseer. This overseer would only vote Hollinger Inc.’s Hollinger International shares on certain major issues, and even then only on instructions from the Hollinger Inc. board. Apart from that, and from retention of the Special Committee directors, we could repossess control of Hollinger International without bringing Breeden down on the company as a special monitor. On this basis we were prepared to accede.

  Less than a week after a perfectly agreeable dinner meeting with various Canadian and American lawyers in Toronto, the SEC was reserving to itself the right to impose Breeden as special monitor whenever it chose, for imprecise reasons. The special monitor would not be confined to conserving assets and preserving the status of the Special Committee; he would be largely controlling, at least negatively, every managerial act. It was a surrealistic horror watching all these factions jockeying to destroy companies I had worked thirty-five years to build.

  On the privatization front, the Ontario Securities Commission staff, with admirable flexibility and regard to the shareholders’ interest, was now adjusting to the retreat of valuator Griffiths McBurney. At the same time, the Walker-Carroll-Kelly axis, having leaked to the newspapers their belief and determination that “privatization was dead,” were startled to discover that the OSC would grant us the exemptions necessary to provide a litigation trust for anything material turned up by the Ernst & Young process. Their entire tactic, of endlessly repeating that the Ernst & Young inspection would have to be substantially completed before the privatization could take place, was blown up, and they scrambled from that trench to the rear, to a much less commodious foxhole of trying to perpetuate themselves in a litigation committee that would have an unfettered right to commence litigation on any subject at our expense.

  The OSC sensibly concluded that the overarching issue was to give the minority shareholders an exit strategy. No one was impressed with Walker’s efforts to pour cold water on the prospect of an offer in one of his garrulous deflationary monologues to the Wall Street Journal on February 19. The Ernst & Young inspection generated yet more fees, as it received herniating masses of material but endlessly went whining back to court claiming a requirement for more information. It was always implied that any reticence about the unlimited continuation of their $40,000 per day extravaganza would be represented as a coverup. After Campbell had created this monster, and was pathetically incapable of imposing any bounds on its appetite, we had no choice but to tolerate its existence and to comply.

  The capable and congenial Gene McBurney solemnly emphasized his difficulties in completing the valuation. He raised his fee in accordance, while protesting in all directions that he was “not a fee-grabber.”

  ON FEBRUARY 7 WALKER CONVENED a meeting with various legal and financial advisers but specifically excluded Hollinger Inc.’s counsel Avi Greenspoon, the only person who had been negotiating on the company’s behalf with the Ontario Securities Commission.

  The meeting predictably produced the result Walker had sought and scripted: privatization within the indicated timelines was impossible. This would ensure that our financing would lapse and the whole plan would crumble.

  The next day, I met with Metcalfe and Wakefield, and their privatization committee counsel. They delivered the Walker message, which I rejected. I demanded a new meeting that would include Greenspoon. Bob Metcalfe and the others, who were doing their best to deal with the Walker-Kelly obstructiveness, agreed, and it was scheduled for the next day.

  I said that the OSC had accepted that the deal was desirable and that the March 31 date was critical. The noteholders had watched their collateral shrink as special dividends poured out of Hollinger International, reducing the value of the company’s shares. The noteholders had agreed to an arrangement that included issuing more of their high-yield notes to a Hollinger Inc. with full-priced Hollinger International shares in its hands, not with shares diminished in value by special dividends from the sale of the company’s principal asset. They were understandably unenthused about our method of paying them with money that reduced the value of their collateral and would not grant any extension, as they did not wish to be bought out with the specially dividended money. It was March 31 or never.

  That evening, Peter White and I attended a meeting of the Commanderie de Bordeaux, a wine-tasting group that numbered Gordon Walker among its members. I had to duck out of dinner to take the usual medley of calls rearranging what had been agreed upon, and telephoned Gene McBurney to tell him what the real purpose of the previous day’s meeting had been, and that the following day’s meeting would include Greenspoon. When I returned to the dinner, it had largely broken up, but White had arranged for a triangular talk with Walker, who, mellowed with good wine and the advent of his choreographed burial scene of privatization the day before, was at his most nauseating. With that political reflex for pseudo-collegialization of responsibility, he averred that “the best minds” had determined that privatization would not be possible by March 31.

  On February 9, Avi Greenspoon opened the reconstituted meeting with a factual summary of discussions with the OSC. Walker and Kelly said nothing. Their silence was telling. The March 31 target was redesignated as desirable and potentially attainable. A shareholders meeting was tentatively called for March 31.

  The infighting and backbiting intensified steadily as the deadline closed in. It was slow, grudging, inching winter warfare. Most of the players were naturally placatory people. At every stage, there was foot-dragging. The Ernst & Young counsel, echoing the Walker spirit, persuaded the directors to seek a court date with Campbell to consider the feasibility of the March 31 deadline.

  Walker played his last card. He effectively transformed this court appearance into a request for “guidance” on whether the directors should procee
d with the privatization before the inspection had finished. He presented an affidavit, supported by four attachments. These were innocuous, if sharply formulated, emails by me to Hollinger Inc. directors Paul Carroll and himself and Don Vale. In the emails to Walker, I accused him of trying to run out the clock on privatization in order to “perpetuate your sinecure.” I also accused him of trying to propagate the theory that I was a notoriously odious character, ineligible because of my turpitude to have any influence on or even knowledge of a company of which I was the controlling shareholder. Kelly cited these emails as evidence of my tendency to bully and threaten directors because I had stated in two of the emails that if the directors “botched” privatization, the shareholders would rise from their “torpor” and hold the directors legally accountable.

  Walker’s affidavit supported the outrageous demand for a “retention bonus” if the directors remained on the board; a directors’ severance if they were removed after privatization; a segregated escrow fund to ensure their welfare and legal costs, and other insulation against the wrath of any shareholder, me in particular. It was a document of stupefying gluttony. As usual, there was wholly inadequate support for the relief they were seeking. The motion was filed on February 25. Walker had collected $97,000 in January 2005 alone, and all of them were at a running rate of more than $1 million a year. I asked our public relations adviser, Jim Badenhausen, to work with this. After a few days, Bloomberg ran with the story and it cracked open, exposing the white knights of the north as money-grubbing ciphers. Walker’s affidavit stated that they would all have to restart their “consulting businesses,” a confession that none of them had any business. These were the replacements for whom Campbell in his commercial acumen and judicial wisdom had turfed out qualified and blameless directors.

  Everything came to a climax on the last weekend before the court hearing, on March 7. The judge had agreed that it was quite in order to begin printing the circular on Saturday evening, March 5. Kelly misled Avi Greenspoon and Steve Halperin about this, causing Avi to impose upon the Ontario Securities Commission to grant a compression of delays and to wring the same concession from all other securities regulators in Canada, including the Yukon. This was nonsense; the judge was happy for us to print on Sunday.

  On Friday, February 25, as Walker’s motion was filed, I found Paul Carroll in the library of our office looking at old minute books and trying to find backing for the $200 million lawsuit he, Walker, and Kelly claimed they would take on behalf of the Hollinger Inc. shareholders against my associates and me. Like the lowliest of jackals after the sleeker (American) beasts had weakened us with their savage attacks, they came snapping at our heels very late. I resisted, with difficulty, the temptation to eject him from our office.

  Peter White and I met with the privatization committee on Friday, March 4. We reached agreement fairly effortlessly on all points, shook hands warmly, and celebrated our community of view. Having been around this track so often, I knew better than to take it altogether seriously. We agreed that we would raise the offer price from $7.25 to $7.60, just above the range GMP Securities, our valuator, had produced. Metcalfe and Wakefield would recommend to the directors that the offer be sent to the shareholders. They would guarantee a majority of directors in favour of doing so, and this would be announced in court on the following Monday. We compromised on an excessive but manageable fund for the litigation committee and to indemnify the directors against lawsuits ($5 million each, outrageous, of course, but sustainable because only we would wish to sue them once the public shareholders had been bought out). As predicted, after they met with counsel and reconvened, the arrangements had started to evolve. We finally agreed, apparently durably, on every material point late in the evening. I sent them a letter incorporating all we had agreed at about ten o’clock. Our informants sent us a fair traffic in copies of the internecine independent directors’ emails through the weekend.

  ON SATURDAY EVENING, in a piquant intermission, Peter and I went to St. Catharines, Ontario, and I gave an address in a winery to a graduating corporate governance class. It was a pleasant interlude with an interesting and convivial group who warmly received my analysis of the Sarbanes-Oxley Act. Corporate governance had reached a point of self-inflicted absurdity. To say that Sarbanes-Oxley was draconian would be to under estimate Draco’s respect for individual liberty. My host crowned an unusually diverting few hours by singing his thanks to me in a five-minute composition of his own devising and bellowing the last verses melodiously as I signed complimentary copies of my Roosevelt book for the guests.

  All went well in court on Monday. When Tony Kelly said for the third time that I had held a gun to the head of the independent directors with the March 31 date, Alan Mark replied that that date was agreed by everyone and not imposed.

  Alan Mark added that it was nonsense for the directors to ask the court for both a retention bonus and massive severance packages. He pointed out that the directors had awarded themselves $1 million a year, a greater sum than had ever been accorded to any non-executive directors in history in any company, and that they had not bothered to come to the court to authorize it. For once Campbell did the sensible thing and refused to rule in any of it, pointing out that the directors were paying themselves “big bucks” and that they should do their jobs.

  It shortly became obvious that Breeden had made a classic mistake, one that Machiavelli, in particular, had warned against: excessive reliance on mercenaries. Walker and Kelly had placed all their trust in the endlessly repeated rosarian mantra that the judge would not allow privatization to proceed before Ernst & Young’s mighty fee-generating inspection ended. (An inspection, I now assumed, that could not end before requiring DNA evidence on my exhumed grandparents and interviews with our personnel in Central America.)

  The only positive aspect I could see in Walker and his crew was that they certainly had their price and were not shy about naming it. They initially demanded $1.8 million each for quitting as directors. They had been directors for less than a year. We were able to reply rather robustly that they had no moral credibility at all, having been exposed as raping the company for a historic fee. Finally, reluctantly, Peter White and I agreed to $600,000 each. Metcalfe, Vale, and Wakefield at least had earned something significant if they did the necessary to bring privatization through.

  When Walker and Carroll hastily packed their saddlebags with their plentiful gains and rode into the sunset, their overloaded steeds belly to the ground and feeling the whip, Breeden was left with no faction to represent him in the endgame in Toronto. The Ontario Securities Commission staff had been unfailingly cordial through months of co-ordinated effort to design an offer that would enjoy their support. And while they had been thorough to a point beyond any normal privatization effort – indeed should not even have been involved in granting permission for it – we had responded to their requests, which, though taxing, were all legitimate and not simply pettifogging.

  The ground quickly began displaying unsightly cracks. The OSC staff suggested that we might like to ask for a public hearing into our proposed going-private transaction. Our sources advised us that Breeden had been in Toronto a couple of days before, lobbying the OSC. The enforcement branch of the OSC gave notice of their own intention to call public hearings on whether a raft of copycat SEC-like allegations should be launched against David Radler, Jack Boultbee, Peter Atkinson (despite all his concessions), Hollinger Inc., and me. They gave so short a time for reply that it was obvious they did not want discussion of this between us but just wanted to get it out into the public that they would be holding such a hearing before the determination of our offer.

  Another initiative, of which the timing was very suspect, was the revelation by the assistant U.S. attorney in Chicago, Robert Kent, that he was intervening in the discovery process with the SEC to try to withhold one document that the SEC was about to hand over to us under court order. Kent stated that it could compromise a criminal investigation he was cond
ucting into several of my associates and me. This was a tainting gesture, though it had been widely rumoured since the problems arose that such an investigation was in progress. Objectively, if the retention of one document for several months was all Kent wanted and all he would deliver for Breeden after seventeen months of poring over these matters, it wasn’t too worrisome. Greg Craig and I wrote up a two-sentence press statement concluding that we’d “welcome any fair-minded investigation.

  I WANTED MY ORDEAL AND BARBARA’S, for which I was responsible also, to be seen as a triumph of principle. Such a victory could redeem almost any agony.

  As if there were not enough public discussion of my condition, a Florida business publication revealed that my Florida house had been the subject of a lien, for about a quarter of its value, by the Canada Revenue Agency. The world press leapt on this, claiming a “mortgage” had been “slapped” on the house, thus implying imminent seizure. This came at the same time as the cries of joy at my potential criminal status, which Murdoch’s London Times and New York Post happily reported could lead to my imprisonment for twenty-five years. Christopher Browne told the Guardian that whether I lived in Palm Beach or the Danbury Correctional Prison was of no interest to him. Nor should it be, but why was this newsworthy? The Guardian had also thoughtfully published advice to Barbara on how to get by in poverty, such as by drawing vertical lines on her legs to imply that she could still afford stockings or tights. Nothing was too low for these base mutations of a free press. A talkative spokesperson for Canada Revenue helpfully told Bloomberg that this was a step the agency took when large amounts were owing by people whom the agency thought it might have trouble collecting from.