Now that a special committee has determined that at least $400 million was pilfered from Hollinger International Inc., shareholders are wondering:
How much money will be repaid?
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When will the money be repaid?
Who will be repaying the money?
There appear to be no easy answers in the aftermath of a report accusing former executives Conrad Black and David Radler of looting the company. And there are more questions:
Does the company let its $1.25 billion lawsuit against the executives wind its way through the courts?
Or does Hollinger try to quickly negotiate with Black, settling for less money in an effort to appease shareholders right away?
Putting the company on the spot are shareholders like Tweedy, Browne Co. and Cardinal Capital, who aren’t likely to sit idly by if Hollinger strikes a deal for substantially less.
“That’s the question,” said Tweedy, Browne partner Christopher Browne when asked whether it’s likely Hollinger will ever see the $400 million repaid.
“Do you want to spend five years going after $400 million? Or do you spend a few months going after less?”
Tweedy is Hollinger’s largest outside shareholder with an 18 percent stake in the parent of the Chicago Sun-Times and other newspapers. Cardinal holds 2 percent of Hollinger.
If you missed the news, Hollinger executives were accused of looting 95 percent of its profits over a seven-year period, thanks partly to a rubber-stamping board that included such luminaries as former Illinois Gov. James R. Thompson and former Secretary of State Henry Kissinger.
“The Hollinger Chronicles” report offered a biting, blow-by-blow account of how Black and Radler manipulated directors. Black and Radler “made it their business to line their pockets at the expense of Hollinger almost every day in almost every way they could devise,” the report said.
Among the alleged atrocities: $225 million in management fees approved by the Thompson-led audit committee without any review that the fees were “fair and reasonable charges to Hollinger,” the report said.
There also were millions more in non-compete fees paid to the executives, the report said. Some were approved. Others were not.
More scintillating was the stunning lavish personal spending, charged to the company, mainly by Black and socialite wife Barbara Amiel Black.
A star-studded, $212-a-plate “Happy Birthday, Barbara” dinner cost Hollinger $42,870.
And there were handbags for $2,463, jogging attire for $140, T. Anthony Ltd. leather briefcase, $2,057, opera tickets for $2,785, and lest we forget, silverware for Black’s corporate jet, $3,530. And $24,950 for “summer drinks” with no other details offered.
And how about the “apartment swap” on Park Avenue in Manhattan? An apartment the Blacks purchased for $499,000 in 1998 was “swapped” for a more spacious apartment owned by Hollinger in the same building in 2000, according to the report.
The Blacks’ apartment appreciated at a 70 percent rate to accomplish the swap, according to the report. Meanwhile, the Hollinger apartment, originally bought by the company for $3 million six years earlier, was credited with zero appreciation. The Blacks, according to the report, got the Hollinger apartment for $2.5 million less than its worth.
Tweedy’s Browne points out that because former Securities and Exchange Commission Chairman Richard Breeden, who led the investigation, attached a firm figure to the alleged looting, it will be difficult to settle for anything less.
But getting money back is more complicated than turning Black and Radler over and shaking money from their pockets.
So far, Black, Radler and other executives have repaid roughly $32 million.
But that leaves a tab of $360 million. How much does Black have left?
Investors peg the value of Black’s net holdings in Hollinger at roughly $160 million.
If shareholders got their hands on Black’s stock, that would bring the proceeds up to $200 million, maybe a little more if you throw in some of Black’s real estate assets, which includes residences in New York, London, and Toronto.
If the company went after Radler and Black’s private newspaper company, Horizon Publications Inc., which bought some Hollinger assets at bargain basement prices, that might bring in an additional $20 million to $30 million, Hollinger insiders speculate.
Unclear is whether management fees that Black diverted to what the report says were “empty shell” companies in Barbados to avoid taxes could also be reclaimed.
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Finally the company would likely turn its attention to insurers of Hollinger’s star-studded board, including Thompson and Kissinger.
Sources say that talks are under way with the directors’ insurers. Insiders say that if a settlement deal is struck, the company could see $100 million at best.
The total amount at that point would be around $322 million.
But even the insurance issue is not without controversy.
Tweedy Browne wants to know whether the company is paying enormous premiums because of the potential liability of the board.
If so, that would reduce the value of any settlement the company would make with the insurers.
So far, Tweedy has asked the company for documents related to the renewal of those policies, but hasn’t received all the documents it requested.
Still, Hollinger has additional leverage to use against Black. The company is sitting on $1.2 billion in proceeds from the sale of The Daily Telegraph in London. Delaying a disbursement could be one tactic to try to force Black to negotiate.
And that leads some Hollinger insiders to believe that negotiating a settlement with Black is more viable every day, especially with the $1.25 billion lawsuit acting as another major leverage point.
“Something like 97 to 99 percent of lawsuits are settled because of the expense and the uncertainty involved,” said Stephen Presser, a professor of corporate law at Northwestern University. He said no one should be astonished if Hollinger decides to settle with Black.
Meanwhile, Black doesn’t appear to be backing down from a fight.
The National Post in Canada on Friday reported that Black took out a whopping $25 million mortgage on his 6.5-acre property in Toronto. That amount is far above the value of the property, according to the report.
It’s an artful strategy: The mortgage makes the property worthless for any creditor on a hunt for Black’s assets and provides him with some more money to engage in legal wrangling. The Lord of Crossharbour isn’t toppled yet.