The board of Chicago Sun-Times owner Hollinger International Inc. and Conrad Black, the ousted chairman who surprised directors by selling his controlling shares in the company, on Monday plotted strategy for the legal battles ahead.
While Hollinger board members consulted with attorneys about how to block the deal, Black sought help from the Superior Court of Justice in Ontario to ensure a successful sale. Argus Corp. and Ravelston Corp., two closely held firms that Black controls, which also own controlling shares in Hollinger’s parent, asked the judge to declare the sale “effective, valid and binding.”
Black stunned the publishing world Sunday by announcing he had agreed to turn his media holdings over to Press Holdings International, owned by multimillionaire British twins David and Frederick Barclay, for $326.5 million, plus the assumption of another $140 million in debt.
The brothers, budding press barons who began buying newspapers 12 years ago, operate The Scotsman and two other titles in the United Kingdom, but make the bulk of their fortune running The Ritz hotel in London, a retail catalog firm and other businesses from their tax-free haven in the Channel Islands.
In announcing the deal, Press Holdings agreed to buy Black’s majority stake in Hollinger International’s parent, which Black owns through Ravelston, and to then make a tender offer for the remaining outstanding shares owned by minority shareholders. They are expected to then take the company private.
The deal could take six weeks to complete.
On Monday, shares in the parent company, Hollinger Inc., nearly doubled on the news. In trading on the Toronto Stock Exchange, shares surged 97 percent, closing at $7.69 Canadian.
In the suit filed in Ontario, Argus and Ravelston also asked the judge to prevent board members Graham W. Savage, Gordon A. Paris, Raymond G.H. Seitz, Richard R. Burt and former Illinois Gov. James R. Thompson from interfering with the bid.
The suit also asks that Richard C. Breeden, the former Securities and Exchange Commission chairman who was asked by the board to lead an investigation into alleged wrongdoing at the company last summer, refrain from stepping in the way of the deal.
`Substantial value’
“The offer by Press Holdings International will provide substantial value to all shareholders of Hollinger Inc. as well as benefiting Hollinger International by allowing the company’s fine media properties to move forward without further distractions or financial uncertainty,” Black said in a statement Monday. “As a result, we are taking appropriate legal action to prevent any interference whatsoever with the completion of this transaction.”
Black said Monday that he had offered Paris and Breeden the opportunity to match the deal. “They, however, declined that offer.”
Hollinger officials declined to comment on Black’s latest move Monday.
Sunday’s agreement capped a whirlwind 48 hours in which the SEC obtained a court order, leaving intact a special committee’s investigation into alleged wrongdoing at the company. Hours later, Hollinger International’s special committee filed a lawsuit against Black and former lieutenant David Radler, saying the two had looted the company of roughly $300 million in improper “non-compete” fees and excessive management fees charged by private companies they run.
Black and Radler were forced out of Hollinger International in November after a special committee determined that they and two other executives had received $15.6 million in unauthorized payments connected to the sale of several Hollinger properties. An additional $16.5 million was wrongly diverted to Hollinger Inc.
Black’s deal with the Barclay brothers followed more than four weeks of secret negotiations during which Black refused to pay an $850,000 restitution payment, the first installment on his promise to pay back $7.2 million in undisclosed non-compete fees he received, by the Dec. 31 due date.
Black agreed to an extension until Sunday, during which he agreed not to sell his controlling stake. At least one source close to Black said that the board wanted him to agree to not negotiate during that period, but Black’s lawyer, John Warden, refused to agree to those terms. Instead, Black agreed not to sell until Sunday.
Meanwhile, Hollinger’s board is expected to meet Tuesday to discuss legal strategies in its efforts to recover money from Black.
Board member Thompson said Monday that he hadn’t seen a notice of the suit and wouldn’t comment on the litigation.
“I guess we’ll have to get a Canadian lawyer,” Thompson said.
“We’ll first hear from the bankers and lawyers and await their advice,” he said.
More than one source close to the board said that among the options under consideration by the special committee is to ask a court to keep some of the sales proceeds in escrow to pay off any award.
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Key to any deal could be bondholders’ approval.
Under the terms of the deal, the Barclay brothers would assume Hollinger’s existing high-interest loans.
Last March, parent company Hollinger Inc. issued $120 million in bonds. In the event of a sale, Black must offer to pay off the loans, including a 1 percent premium of outstanding principal and any past due interest.
In late 2002, Hollinger International borrowed $300 million in long-term bonds from a group led by North Carolina-based Wachovia Securities Inc., Toronto-based TD Securities and London-based Barclays Capital, which is unrelated to the brothers making the Hollinger bid.
The bonds, which pay 9 percent interest, come due in 2010.
A sale by Black would trigger a requirement that Hollinger International offer to pay off those loans. But the prepayment requirement option could also be an advantage to the better-financed Barclay brothers, who could choose to refinance the debt with lower-interest loans.
International complications
Complicating matters is whether a civil judgment by an American court for violations of U.S. securities laws could even be enforced in Canada, Hollinger warned investors last year.
“That’s another reason why the company would want to reach out now,” said Michael B. Hyman, a partner at Chicago-based law firm Much Shelist.
Some observers and shareholders don’t see immediate winners or losers in Black’s deal with the Barclays.
“I don’t think anything is clear just yet. A lot of the [board’s] options depend on how the Barclay brothers want to play this,” said Laura Jereski, an analyst with Tweedy, Browne Co., which owns 18 percent of Hollinger International. “The goal of the special committee is to recover what they can. Their options depend on how easy or hard [the Barclays] want to make it.”