The Rise and Fall of Conrad Black and Hollinger International

JOUR 350 The News and Media Business

Week 3

Why is Conrad so despised?
•	He despises journalists
•	He uses way too many big words
•	He changed Canadian journalism
•	http://blackenvy.8m.com/home_bnv.htm 

Disgrace and disputatiousness 
•	Hollinger once third-largest newspaper publisher in the world
•	Newspapers it owned:
•	London Telegraph
•	Chicago Sun-Times
•	Jerusalem Post
•	Most Canadian dailies
•	Australian hoildings

The biography man
•	1st biography of Black published in 1982
•	Peter C. Newman, The Establishment Man
•	he was 38
•	Richard Siklos, Financial Post  New York bureau chief
•	biography published in hardcover in 1995
•	updated for re-issue

Two new biographies
•	Appeared last year
•	After Black’s Hollinger empire began to unravel
•	Amid allegations of corporate pilfering
•	Also Maude Barlow, Big Black Book: The Essential Views of Conrad Black & Barbara Amiel, 1998

Barbara Amiel
•	His second wife
•	Maclean’s columnist
•	Named editor of Toronto Sun in 1983
•	Moved back to England 1985
•	Became a high-profile columnist for the Times of London

Barbara Amiel Black
•	Married Conrad 1992
•	Second marriage for each
•	Moved her column to the Telegraph in 1994
•	Became VP, Editorial of Hollinger 1995
•	Named a director 1996

Black’s autobiography
•	published in 1993
•	led to scandal in Australia
•	detailed his attempts to raise foreign press ownership limits
•	promised PM ‘balanced’ coverage of election
•	resulted in Senate inquiry
•	Black sold Fairfax holdings

A frustrated scholar?
•	son of wealthy Toronto brewery executive
•	B.A. Carleton University
•	law degree from Laval University in Quebec 
•	M.A. in History from McGill
•	Wrote biography of Duplessis in 1977

A political history buff
•	military historian
•	Napoleon devotee
•	Reaganite/Thatcherite
•	began researching biography of FDR
•	spent millions on his personal papers
•	published late in 2003
•	It’s 1,296 pages! 

Black beginnings
•	idolized W.R. Hearst as a youth
•	after reading Swanberg’s 1961 Citizen Hearst
•	began newspaper empire in 1969
•	bought Sherbrooke (Que.) Record  for $18,000 
•	with two friends: David Radler & Peter White
•	received $7-million inheritance late ’70s
•	included share of giant Argus Corp.
•	which he proceeded to take over

Sterling newspapers
•	built modest 15-title chain of small papers
•	larger ambitions frustrated thru early ‘80s
•	lost 1980 bidding war for F.P. Publications
•	Toronto Globe and Mail, Winnipeg Free Press, Vancouver Sun, Ottawa Journal, Montreal Star
•	instead bought by Thomson Newspapers 
•	began buying Southam shares early ’80s
•	takeover bid frustrated in 1985
•	defensive “share swap” with Toronto Star

David Radler, right-hand man
•	Maybe “hatchet” man?
•	Called “human chain saw” for cost-cutting 
•	Was publisher of four newspapers at once
•	Co-operating with authorities
•	Arraignment set for tomorrow in Chicago

First, we take London. . . . 
•	sold Southam shares for profit in 1985
•	bought Daily Telegraph for bargain US$30m
•	joined move out of Fleet Street
•	cut staff from 3,900 to 1,000
•	a loss of £8.9 million in 1986
•	became a profit of £41.5 million in 1989
•	broke a strike by journalists in 1989
•	Tely became “newspaper cash machine” 

Coming to America
•	began American Publishing subsidiary 
•	ran classified ad in E&P  starting mid-’80s
•	paid $106 million for 34 small papers in ’86
•	340 more over next 10 years for $302 million
•	boosted profits by cutting costs
•	imposed right-wing editorial policy
•	bought Sun-Times for $180 million in ‘93  
•	2nd-largest chain in U.S. by titles in 1995 

Jerusalem Post
•	ailing daily lost $2 million in 1989
•	relies on circulation revenue outside Israel
•	Hollinger bid $20 million for it
•	next-highest bid was $8 million 
•	Maxwell, Bronfman only bid $3.5 million
•	some suspected ulterior motive
•	imposed right-wing agenda
•	hired Israeli army colonel as publisher
•	journalists revolted, dozens quit

Conquering Southam
•	“standstill agreement” with Torstar set for 10 years – was due to expire in 1995
•	share swap challenged by some shareholders
•	lawsuit settled with early expiry of agreement
•	Southam again vulnerable to takeover
•	Black bought Torstar stake in 1992
•	paid 15-percent premium over market value
•	Southam issued treasury shares to Power

Paul Desmarais and Power Corp.
•	Montreal businessman 
•	owned chain of 41 Quebec papers
•	members of Southam family approached 
•	wanted to counter-balance Black’s influence
•	maintain standards of newspaper quality 
•	issued him C$200 million in shares
•	giving Desmarais similar 20-percent holding
•	citing defensive firm bylaw enacted earlier

The demise of Southam
•	Southam lost millions in early 1990s
•	Desmarais went along with cost-cutting
•	independent directors froze duo out
•	Desmarais proposed breakup of chain
•	independent directors balked
•	Black labelled them an “obdurate rump”
•	Desmarais sold his shares to Black
•	who made himself CEO, fired directors

Lord Black of Crossharbour
•	named to House of Lords in ’99
•	Canadian PM blocked 
•	Black sued for abuse of process
•	lawsuit thrown out in 2000
•	renounced Canadian citizenship
•	sold Southam for C$3.5 billion
•	to CanWest Global 
•	television network

Hollinger International
•	by mid-’90s third-largest newspaper chain
•	after only News Corp. and Gannett
•	Hollinger International  IPO in 1994 
•	Black kept all preferred shares
•	each of which carried 10 votes
•	control allowed him to name directors
•	installed political cronies on board
•	Kissinger, Thompson, Perle, etc.

Corporate structure
•	HI ownership “pyramid”
•	built on series of holding companies controlled by Black and Radler
•	paid management fees
•	instead of salaries
•	owned only 18.8 percent of shares
•	but controlled 73 percent of votes

Shareholder complaints
•	institutional investor Tweedy Browne LLC
•	owned 18 percent of HI shares by 2001
•	questioned increase in management fees
•	along with “non-compete” payments
•	made to companies of Black and Radler
•	complained to SEC payment unauthorized
•	hand bolstered by 2003 Disney decision
•	forced appt. of independent directors

Report of independent directors
•	commissioned in spring of 2003
•	14-month investigation by Richard Breeden
•	found unauthorized non-compete payments
•	Black resigned in November
•	promised to repay $7.2 million
•	missed first payment in December
•	HI filed $1.25b lawsuit in January 2004
•	against Black, Radler, five other executives

A “corporate kleptocracy”
•	513-page report issued on August 30, 2004
•	claims Black, Radler “looted” HI
•	used voting power for personal gain
•	“non-compete” payments unauthorized
•	$3.9 million per year from CanWest Global
•	for dropping price of Southam $39 million
•	many “related party” transactions found
•	HI sold papers to Black, Radler companies
•	for less than offers, even $1, some paid to take

A personal “piggy bank” 
•	alleges Black used HI to finance lifestyle
•	$3 million to buy Upper East Side condo
•	$3-4 million a year to lease personal jet
•	$8 million to buy personal papers of FDR
•	counted more than $400 million taken
•	for own use from 1997-2003
•	amounting to 95 percent of HI net earnings
•	enabled by lack of corporate governance

B.C. boondoggles 
•	Hollinger owned the Capital News in Kelowna
•	Horizon bought Kelowna Daily News
•	Black and Radler secretly controlled Horizon
•	Competition Bureau ordered sale of one
•	David (no relation) Black offered $8m for Capital News
•	but it was instead to West Group 
•	Controlled by former Hollinger executive
•	with Vernon News for only $5m, later sold for $14m

Richard Perle
•	Former U.S. Assistant Secretary of Defense 
•	Chair of Pentagon’s Defense Policy Board 
•	HI director from 1994
•	3rd member of its executive committee from 1996
•	with Black and Radler

An independent director?
•	headed Hollinger Digital from 2000
•	included canada.com, trip.com
•	until it failed in 2003 after $49m in losses
•	Perle paid huge bonuses nonetheless
•	including $3 million in 2000
•	due to incentives set by Black, Radler
•	and based only on successes

A “flagrant abdication” 
•	Perle admitted not reading documents
•	or discussing them with Black, Radler
•	before “rubber-stamping” them
•	“Perle clearly had a motive to abdicate his fiduciary duties as an Executive Committee member so as to accommodate the persons responsible for his huge Hollinger compensation, Black and Radler.” 

Black’s denial
•	described report as “exaggerated claims laced with outright lies”
•	fighting to regain control of company
•	pushed through sale of Telegraph
•	to Barclay twins for £1.3 billion
•	defending lawsuits in Illinois, Delaware
•	SEC also investigating Hollinger Int.
•	after it admitted profits over-stated for years