Conrad Black’s bitter fight to stop the sale of the London Daily Telegraph dead-ended Friday in the Delaware Supreme Court.
Now the real maneuvering begins.
Hollinger International Inc. suddenly has the upper hand in its staredown with Black, the controlling shareholder and former chief executive, after the court cleared the way for the $1.2 billion sale of the Telegraph by refusing to hear Black’s argument. The sale closed Friday.
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Now Chicago-based Hollinger International, which also owns the Chicago Sun-Times, must figure out what to do with the money, some $850 million in proceeds after debts are paid, in what looks like a chess game in which the Lord Black of Crossharbour could be toppled.
Hollinger International board members ousted him from the company amid a payment scandal in November. Now, the board wants him out of the picture completely, or at the very least, left powerless. The board has at least a couple of options that include:
– Paying a special dividend to shareholders, but only declaring a dividend to holders of Class A shares.
Almost all of Black’s shares in Hollinger International are tied up in his supervoting Class B stock.
Under this scenario, the company could virtually side-step paying Black anything. Currently, Black’s Toronto-based Hollinger Inc. holds roughly 15 million shares of Class B stock and only 792,560 shares of Class A stock.
And all of Black’s Class A stock is being held in escrow after Hollinger Inc. restructured debt.
This would be one way to try to force Black to settle, say Hollinger International sources.
Hollinger International sued Black and other executives earlier this year, claiming that they pillaged hundreds of millions of dollars from the company.
– A second option would be to buy back shares and cash out investors.
If Black decided that he needed cash–and he does–he might have to give in and sell some of Hollinger Inc.’s 68 percent voting control in Hollinger International, currently valued at more than $230 million.
The downside, however, would be possibly losing voting control over Hollinger International.
And that is not something observers think Black would want to do.
In effect, Black is boxed in.
“No one expects him to give up control of the company,” said one Hollinger International source. But keeping control means possibly not having enough money to pay off debt obligations at Hollinger Inc.
As of Wednesday, Hollinger Inc. had $10.8 million in cash on hand and $78 million in debt obligations. There is a $4.7 million interest payment due in September.
Wonder why he was fighting so hard to block the sale? Just about everything, notably his leverage in a possible settlement with Hollinger International, was tied up in last week’s decision in Delaware.
Hollinger International isn’t yet tipping its hand on what option it will choose.
The Hollinger International board likely will do nothing until after Aug. 20. That’s when the board’s special committee is expected to issue its much-anticipated investigative report that would detail how the company was allegedly fleeced.
The best that Black will be able to do is possibly restructure his debt yet again and perhaps thereby put off the inevitable until he figures out if there’s a way to wiggle out of the handcuffs.
Chances are that even Harry Houdini wouldn’t be able to get out of these ones.
Lord who? Without the Telegraph in his fold, Black, who lost his bid to keep it late last week, may find it a little more difficult to get an invitation from the queen.
Delaware judge Leo Strine, considered one of the more articulate judges on the Delaware Chancery Court bench, couldn’t care less.
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“It may be that there exists somewhere an [Hollinger] International stockholder (other than Mrs. Black or perhaps some personal friends of the Blacks) who values the opportunities that Conrad Black had to dine with the queen and other eminent members of British society because he was the Telegraph’s publisher,” he wrote in his 92-page opinion blocking Black from his efforts to stop the sale of the Telegraph.
In reality, he said, this case was about the economic expectations of reasonable investors, “and not the aberrational sentiments of the peculiar persons who invest money to help fulfill the social ambitions of inside managers and to thereby enjoy vicariously extraordinary lives themselves.”