Controversy grows over planned sale of Cayman newspaper shareholder

Monday, February 2, 2004

NEW YORK, USA: The dispute over Lord Black's proposed sale of Toronto-based Hollinger Inc., a 40 percent shareholder of Cayman Free Press, publisher of the daily Caymanian Compass, continues to escalate. 

Hollinger International, in which Hollinger Inc. has a 72.6 percent voting share and 30.3 percent equity interest, has amended its US$200-million lawsuit against Conrad Black, his holding company and his associates, adding an accusation that they engaged in a "continuing conspiracy" to improperly divert money from the company.

At the same time, Lord Black has added the US Securities and Exchange Commission to the list of people he is taking to court in the wake of the allegations of unauthorised payments from Hollinger International.

He has asked a US federal court to lift a court order demanded by the SEC preventing changes to the Hollinger International board.

Meanwhile, Press Holdings International (PHI), the British group controlled by David and Frederick Barclay, offered to buy Hollinger International for 18 dollars a share, then withdrew the offer.

The twist came as Hollinger International, the Chicago-based subsidiary of Conrad Black's media empire, which also includes London's Daily and Sunday Telegraph, the Chicago Sun-Times and the Jerusalem Post, desperately tried to block the acquisition of Hollinger Inc. by the Barclay twins.

The terms of the proposed sale of Hollinger Inc. to PHI have prompted a letter to the Ontario Securities Commission from New York investment firm Tweedy Browne Co., complaining about the PHI offer.

In the letter, Tweedy Browne said the offer is unfair to minority shareholders of Hollinger Inc. because it puts an extra $66-million "in the pockets of Conrad Black and his associates" by picking up their responsibility for paying interest on $120-million of bonds.

OSC executive director Charlie Macfarlane said the regulator is taking a serious look at whether the bid for Hollinger Inc. favours Lord Black over minority shareholders. 

"If it becomes apparent to us that some action is necessary, we will certainly take it, but that is not apparent to us at this point in time," he said. "We could stop the deal if we considered that to be appropriate. I'm not saying we've reached that conclusion."

The reportedly withdrawn $18 a share offer for Hollinger International has itself prompted another complaint by Tweedy Browne, this time to the US Securities and Exchange Commission. Tweedy Browne suggests that by misleading Hollinger's public stockholders, the brothers have created a handful of big stockholders, who might be amenable to a private deal.

Laura Jereski, an official with Tweedy Browne, says that through the unusual on-again, off-again overture the Barclays were "creating a semblance of a tender offer in order to stampede stock into a few hands."

There is a reason that the Barclays, who are said to be maneuvering to take control of Hollinger International despite opposition from the company's board, might want to concentrate ownership among a small number of owners. Doing so might allow them to end-run regulatory hurdles.

Through the pending deal to acquire Lord Black's holdings, the brothers are on the verge of acquiring a commanding 73 percent voting stake in the company.

But even if that deal closes they would still face a problem: Under the law in Delaware (where Hollinger International is incorporated), an acquirer who takes control of a company without board consent faces legal restrictions on how it can run the company.

Experts say Delaware's "Section 203" would prohibit the Barclays from either merging Hollinger International's newspaper assets into existing Barclay operations, or from selling off assets, for three years.

Section 203 does not apply, however, if the acquirer has an 85 percent or higher voting stake.

In theory, the Barclays can gain unchallenged control of Hollinger International by buying up an additional 12 percent, or roughly 10.5 million, of the company's shares.

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