This was misleading with respect to my case, as well as outrageously indiscreet. I had volunteered this arrangement, transitorily, until something could be set up in Canada. And I was quite satisfied that Canada Revenue would never be adjudged to be entitled to the claim in question (nor was it). I was accustomed to negative publicity, but this was another flood of it.
At the same time, the OSC privately assured us at several levels that if we were to ask for a public hearing on the technical question of whether the consolidation we were planning was a trade, they would ensure that the staff would stand fast behind their existing recommendation in favour of our application. If we had refused, they would have invoked the public-interest umbrella criterion and called such a hearing anyway, under less promising auspices than what they were now offering. So, we agreed. The OSC hearing was called for March 21 to determine standing to appear and March 23 and 24 for substantive discussion of the issues.
Eddie Greenspan and I wrote out a press release expressing concern about the timing and motives of bringing this forward so quickly and on such a tight schedule to the privatization deadline, although the OSC had had all the material for these matters for seventeen months. We referred to the recent hitherto secret visit of Breeden and warned the OSC against seeming to be a cat’s-paw of such an odious figure.
On Saturday evening, March 19, the commission revealed that the staff recommendation, including the enforcement section, was in favour of our application. At least they seemed to be keeping the real public interest, the rights of the minority shareholders, uppermost in mind and we were encouraged.
If the United States is plagued by a strict corporate governance regime that lends itself to the aggressive tactics of the likes of Christopher Browne and Richard Breeden, then flaccid, anti-Darwinian Canada, the victims’ paradise, must always have something for everyone. This was the spirit of Campbell’s fatuous “win-win” propounded to Jack Boultbee’s lawyer as he hung the glorious albatross of the Ernst & Young inspection on us. (Yes, a “win-win” – a win for Ernst and a win for Young.) This seemed to be the spirit of the OSC having the staff so thoroughly vet every detail of the offer and approve it, then as Breeden’s influence metastasized, making its gesture against me with these unusual public hearings. I was being whipsawed between the most infelicitous aspects of the systems of both countries.
Terence Corcoran in the National Post took up the case on March 22 and warned the OSC not to become a dupe of Breeden. The OSC was notoriously subject to influence from the Toronto financial press, and the Globe and Mail could be relied on, as always, to do everything possible to disrupt anything I was seeking to achieve (as it did with the CanWest sale and the peerage). The pressure rose steadily as we headed into the week of the OSC hearings. Jacquie McNish, co-author of her one-sided, school-snitch squeal of a book about these events, moved to protect her version of them through an interview with Breeden.
Breeden garrulously revealed that he had indeed called on the OSC to “lecture” it on the necessity of not allowing the Hollinger Inc. minority shareholders to vote on our offer because it might facilitate my return to Hollinger International. In this interview, as he had in a so-called statement of fact and law filed with the commission by Hollinger International on March 18, Breeden effectively stated that it was the OSC’s duty to prevent shareholders from deciding for themselves what they wanted.
McNish followed up with an editorial comment attacking the OSC for even considering allowing our proposal to proceed. The OSC was, I thought, squarely on the horns of a dilemma. Either they would have to prostrate themselves at Breeden’s and the SEC’s feet and deny the shareholders what they were seeking or they would have to defend the rights of the shareholders and send the Americans packing. We had aligned our interest so closely with that of the minority shareholders, it was going to be very difficult to discomfit me without showering collateral damage on the public shareholders, whose protection was the commission’s chief raison d’être.
The main hearings on March 23 and 24 were very comprehensive and fairly conducted. Breeden sketched out clearly in both of his memoranda his fear that I would reassert Hollinger Inc.’s rightful control over Hollinger International, as if this were self-evidently an affront to the indisputable public interest of both countries. There was an almost unquestioned presumption of guilt.
Lawyers supporting the transaction did so effectively, in contrast to the usual bombastic performance by Glassman’s lawyer, who was as belligerent as the client but more fluent. It was indicative of the Globe and Mail’s difficulty finding respectable opposition to our offer that it reinflated and touted the Vancouver investor-commentator Ken McLaren, who for many years has been seeking recognition from the financial press at almost every controversy, like a child at the back of the class whose hand is in the air eagerly waving at all times. The Globe and Mail promoted him as a reliable source of antagonistic comment and used him endlessly as such.
Counsel for Hollinger International and Catalyst (acting for Glassman) followed McLaren and engaged in their customary attempted assassination of me. They had no argument apart from hammering the theme that I was so tainted, corrupt, and dangerous that any means were justified to frustrate me. One of the opposition lawyers referred to me as “Saddam,” and claimed that what was afoot was a “titanic struggle between good and evil.” I received bulletins as the March 24 session wore on, feeling somewhat numb with the tension of the occasion. I called Eddie Greenspan, who went to the hearing room prepared to speak on my behalf.
Greenspan judged it unnecessary to say anything after hearing Alan Mark’s summary and rebuttal. He considered it “stirring and brilliant.” Mark gained the “Quote of the Day” in the Globe and Mail with “This is a lynch mob persecuting a man who hasn’t been found guilty of anything.” He pointed out that my associates and I had created value that was being squandered; that Paris’s compensation had been described even by Jereski as “grotesque”; and that Breeden had been trying to bully the Commission into crushing the minority shareholders again, as he had persuaded Strine to do a year before.
The OSC staff, though invited by the presiding Commissioner, Ms. Wohlberg-Jenah, to alter their endorsement of the offer, emphatically reaffirmed their decision that it was fair, with the enforcement director as their chief spokesperson. The Easter weekend was a time of great tension as all sides awaited the commission’s ruling.
THERE WERE OTHER CONCERNS. I had tried on the two days before Good Friday to close the deal in London for the sale of my house there. This was necessary to provide a reasonable pool of cash, and if the privatization did not go forward, it would be absolutely necessary for financial survival, including, in particular, paying Williams & Connolly’s bills. We just missed closing the sale before the Easter long weekend.
More worrisome, Glassman had finally bestirred himself, also on Thursday, March 24, to buy the Toronto-Dominion Bank’s shares in Hollinger Inc., a block of about nine hundred thousand shares, at $7. That meant nine hundred thousand fewer votes for privatization if we were allowed to make the offer. As far as we could discern, the other blocks with which we were in touch were solid. But if Glassman, who could muster about $300 million in his Catalyst Fund, went after all the blocks and was not his usual, indecisive self about what he paid, he could be a real threat.
There were only 7.5 million minority shares outstanding. Friendly blocks held about 2.3 million shares. Glassman was now close to 1 million. I believed I had a lead of about 1 million shares among the odd-lot holders, so Glassman would have to pick up more than 1 million shares before 10 a.m. Tuesday. I prepared, if necessary, to raise our offer price and considered methods of bidding for the underlying rights accruing to holders of the Contingent Cash Payment Rights (CCPR) set up by the litigation panel arrangements, as the rights themselves were not transferable. If Glassman went far enough above our price to blunder into an obligation to bid for all shares (more than 15 per cent above market price), we would con
sider selling to him and taking out $200 million.
I believed we had a support strategy that would be adequate and that might again be aided by the Glassman factor. On March 24, he had turned up personally twice at our office. The first time he came to see the head of the Ernst & Young inspection team and was seen off by the receptionist. (He doesn’t exactly have the physical presence of J.P. Morgan.) The second time he arrived with five podgy women in tow, who sat in the boardroom transcribing the names of shareholders from the shareholders list. Our informants sent us copies of hilarious emailed bickerings between the independent directors.
The noteholders were not inactive. One of their lawyers telephoned Avi Greenspoon in early March, threatening injunctive action if the special dividends from the Telegraph sale were not retained as collateral for their notes. They wanted a 13 per cent yielding, cash-collateralized note and $40 million of notes on the original terms. These people had succumbed to the virus of greed more terminally than anyone except the Walker-led, $100,000-per-month non-executive directors. Ever resourceful, Greenspoon “played the dumb Canadian,” a role whose validity, he dryly added, Americans never doubt. He strung it along with the help of Sullivan & Cromwell, and the noteholders more or less folded, illustrating again how fatuous was the position opposite the SEC originally championed by Walker that all would be collateralized: the cash collateral yielding the company 4 per cent and the notes costing it 13 per cent. This was the new-broom rotating chairman.
As light departed Easter Sunday, I finished a brisk neighbourhood walk with Barbara and took a swim, regarding the tattered pink western sky from my swimming pool as I had so often done on Sunday evenings from a nearby prospect in my youth. In those far-off days, I had timorously wondered what another school week would bring. Now I dared, very tentatively, to hope that justice might prevail. The holiday of Resurrection gave way to the long-awaited day of judgment.
MONDAY, MARCH 28, ARRIVED, and I steeled myself to hold any optimism in check, but still I had some excitement that we were about to turn a very advantageous corner. Barbara had retreated upstairs. Her appearances in my library seemed to coincide with bad-news telephone calls, and she had decided she was a hex. I sat like a zombie in front of my computer screen from 8:30 a.m. on, receiving emailed assurances from the OSC that their decision was imminent. The decision was initially announced for 11:00 a.m. When 11:30 a.m. passed and there was still no news, my optimism began to sink.
At 12:29 p.m., it clicked onto my screen. I scrolled to the end to read that the OSC had tersely rejected our application. The feeble rationale harped on the irregularities of the offer and implied that there might be some question of the independence of the directors and valuator. They could not state that they took the allegations Breeden and the SEC had brow-beaten them into making against my associates and me as proved. But the commissioners acted on the theory that they had been proved although I had had no compliance problems with the OSC in my career with public companies of over thirty years. Their own staff had given the green light to our offer, we had agreed to an independently administered litigation fund as a safety net should any irregularities come to light, and 87 per cent of the minority shareholders’ votes had come in favouring the privatization, but still the shareholders had been ignored and trashed by the very regulators who styled themselves as their protectors. It was astonishing. I could only suppose that the thrill of actual proximity to the big American former super-regulator Richard Breeden had turned the head of Ontario’s public securities protectors, including the robotic Ms. Wolburgh-Jenah, OSC inquiry chairperson.
On the afternoon of this crushing day, I convened a legal teleconference and said that I had to get completely clear of the companies, that we had to remove from Breeden’s hand the sword of instant victory he enjoyed by merely reciting my name.
We would have to get rid of Walker and Carroll, who would, by now, be drinking champagne from a fire hose. Otherwise, they would be instantly back, completely in charge at $100,000 per month, and would effortlessly dominate the others to complete the Strosberg playbook by putting Ravelston to the wall and delivering the company to Breeden at a handy payoff for themselves. Ravelston would have to be put into receivership within ten days and administered in its shareholders’ interest under court protection, asserting a post-Black right to get rid of Walker and Carroll. I would become a creditor because of my pension rights. Whatever value could be salvaged from my shareholding would be a bonanza to my very diminished expectations.
A little more than two years later, Hollinger Inc. would be worthless – reflecting an astounding performance by the Ontario Securities Commission. Ravelston would be worthless, and Hollinger International would have lost 95 per cent of its March 2005 value, and in another two years it too would be worthless. Judges Strine, Campbell, and Farley,* who is about to reappear, plus Breeden and the OSC, and a few late joiners would wipe out $2 billion of value in the briefly holy name of corporate governance. The only ones to have prospered were Breeden, Paris, Seitz, Walker, Carroll, the lawyers, Ernst & Young, and the receiver. It was for them that officials in Canada and the United States apparently toiled. I still had a good deal to learn about the imperfections of the rule of law in both countries.
I was completely finished as an important businessman, at least for an indefinite period. I would read and write. And something useful might still be possible, if I could survive the ordeal. Barbara and I had a very un-uplifting conversation before she prepared to go to London for the job of sorting and packing up the contents of our home on Cottesmore Gardens, now a mournful monument to a happy and stylish life that had gone forever. Pulling up stakes from the U.K. was wrenching for her. She had been something of a gypsy all her life and had wanted keenly to make a home in the country of her birth. It was the end of a more than twenty-year effort in London. Though Barbara fights it, she is privately a person of faith who in bleak hours falls back on cantorial music and ritual, usually alone in a room out of sight. We held each other before she left: “Whither thou goest, I will go, and where thou lodgest, I will lodge,” she said, commenting wryly that the next couple of promises in the text were a step too far.
We would surmount this. And yet, Breeden was just as horrifying (if more accomplished) as he had been the day before. He certainly deserved tactical credit for another victory, but our press release referred only to our sadness for the public shareholders, whom we had tried to serve and who had been denied a generous exit strategy twice in thirteen months by unjust judicial and regulatory decisions.
The Ravelston receivership was certainly not entered into because of bankruptcy. It was a prosperous company in assets, strangled of income by the seizure of both Hollingers by Breeden and Strosberg, acting through their respective pawns. Without any income it couldn’t possibly make the support payments to Inc. that Maureen Sabia had insisted on. If I put it into receivership myself rather than wait for the event, at least I could choose someone who would look after our interests. The role of a receiver in insolvency proceedings is to sort out claims under court supervision. He or she is sworn to put the interest of the stakeholders first. In Ravelston, the only stakeholders were the shareholders, which in essence meant principally me, so receivership seemed a good way to protect my remaining assets held there – namely my pension and my International and Inc. shares.
I hadn’t much time to search for the best receiver – the dominoes were falling all around me – and after speaking to a couple of companies, I took the recommendation of Derrick Tay at Ogilvy Renault, the law firm that had previously been counsel for me and had given me the services of Alan Mark. They recommended RSM Richter and assured us that firm would remember who had hired them and act responsibly. By now that had a hollow ring, but there wasn’t much else I could do apart from pray – which I was already doing. Tay’s advice, as I suspected, proved completely worthless.
There were still no victims of our misfortune except ourselves, though we would now quickly be joined b
y all the other shareholders. We knew that the agony would go on, probably for another two or three or more years. I hadn’t a hope that any of the Breeden-Paris-Seitz group knew how to manage the remaining newspaper assets. There wasn’t a single newspaper person or even manager in any field among them; they seemed uninterested in hiring any senior executive who did know the business, and while the Chicago Group of newspapers was profitable and ought to earn a good sale, it needed clever steering and editorial brushing-up first. I was still defending a noble cause, the right of an honest man to his reputation, though I was still inaccessible to much moral support. I had lost another battle, but not the just war, which had reached a new level of destructive intensity.
* James Farley was one of Canada’s most opinionated and frequently published judges – indeed an older, more voluminous and bombastic, but equally self-preening judge as Leo Strine, complete with the conviction of his riotously amusing wit.
[CHAPTER NINE]
I WAS REDUCED TO CITING Henry Kissinger’s gloomy comment at the worst stages of the Cold War: “It is actuarially unlikely that we will lose every round.” The situation became instantly desperate. Barbara was at our London home, spending nearly eight weeks of demanding physical and mental work, tearing down the interiors that had taken her several years to complete, sorting books, papers, possessions, and furniture in order to choose what to store, sell, or return to Toronto. Apart from furnishings and art, she was trying to cope with some eight hundred boxes of books to be shipped somewhere. Only the superb organizing of her indefatigable assistant of thirteen years, Mrs. Penny Phillips, could have made this possible. I scrambled to close the sale, because it would now be impossible to recover the $15 million I had advanced Hollinger Inc. to repay the non-competition payments Strine had made me jointly responsible for with the company. The London house would produce enough cash to deal with the urgent payables. More surplus real estate would need to be sold, so we prepared for the next chapter in the ordeal. Our assets in the Hollinger Group were under cease-trade orders, and our other assets were illiquid.
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