Saturday, August 9, 2008

Memo to Lawrence Martin: Facts matter

No matter how insightful your analysis, mangling the facts leaves you wide open to criticism. That's why I was moved to write a corrective to the Globe and Mail columnist's piece of Aug. 7, "The sale of the National Post would reverberate in political circles." Martin is absolutely right that Conrad Black's acquisition of the Southam newspaper chain and founding of the National Post changed journalism in Canada. My survey of scholarly research on the subject for Asper Nation showed how the Post fiddles the facts to suit its ideological agenda, which is not so much journalism as propaganda. But it is wrong to characterize Black's acquisition of Southam as a "purchase," or to suggest that Southam family members willingly sold him their historic newspaper chain. Instead, as I state in my letter to the editor, it was a "classic hostile takeover." That was for the sake of a 200-word limit. In my book, I characterized it as "a work of high-finance artistry." But for the full story, you have to go back to an article I wrote in 2003 for the International Journal on Media Management, "The good, the bad, and the ugly: Financial markets and the demise of Canada's Southam newspapers." It told how the Southams had been scheming for years to keep Black from getting his hands on their newspapers before he finally outsmarted . . . or outlasted them.

By the mid-1980s, stock in Southam was widely held. Southam family members, by then into a fourth generation of ownership, had sold off so many shares that together they owned only about 30 percent of the company. When a mystery buyer began buying up large blocks of shares, family members panicked, figuring it was Black. It may instead have been Toronto real estate developer George Mann, but that didn't mean Conrad didn't have designs on Southam. He did, and had been steadily acquiring shares in it. Share prices rose on speculation of a takeover attempt, and family members became frantic. The attempted a couple of measures to ward off predators before finally settling on a "share swap" arrangement with Torstar in 1985. Southam traded 20 percent of its shares for 30 percent of the smaller Torstar in a "near merger" that made a Southam takeover nearly impossible for any other potential acquisitor. Part of the deal was that neither Torstar nor Southam would attempt to take over the other for a "stand-still period" of 10 years. Black sold his Southam shares for a tidy profit and bought the Daily Telegraph in London, which became the cornerstone of the worldwide newspaper empire he built over the next decade.

Meanwhile, back in Canada, shareholders disgruntled by the share swap found that Southam had failed to provide sufficient notice for a vote on the arrangement, and went to court in an attempt to have it struck down. An out-of-court settlement shortened the stand-still period to five years, which meant Southam became a takeover target again in 1990 instead of 1995. By then, Black had made millions by cutting costs (read staff) at the Telegraph and numerous other newspapers he had acquired. He talked Torstar out of its 20 percent stake in Southam, and family members panicked again. They sounded out Paul Desmarais, one of Quebec's largest press owners, on his support for quality journalism, and thinking they had an ally issued him a similar 20-percent block of shares from the company treasury. Desmarais and Black, however, were neighbors in Palm Beach, where they conspired to break up Southam. Black would get several of the smaller dailies for his 20 percent. Independent directors of Southam blocked that move, only to be branded an "obdurate rump" by Black. Instead, Desmarais sold to Black, who gained effective control over Southam as a result and fired the independent directors. Over the next few years, he made repeated offers to other Southam shareholders (of which, as a result of the Southam employee stock purchase program, I was one) in an attempt to acquire enough stock to take the company private. First, he used his de facto control to disperse Southam's considerable cash reserves, declaring a special dividend that enriched him most of all. Then he used Southam's considerable credit rating to borrow for another special dividend. It was difficult not to admire the kind of mind capable of such scheming, but by 2003 Black had outsmarted even himself and his house of cards came down around him.

Before he turned his back on Canada, however, and well before he was incarcerated for fraud, Black craftily cashed in on his ingenious takeover of Southam by inculcating it with the very kind of neoconservative agenda the moderate founding family had feared. Unlike the Aspers, however, Black knew enough about newspapers to realize he would encounter stiff resistance if he tried to impose a radical new political agenda from on high, and that doing it gradually from the bottom up, through hirings and promotions, would take many years. Instead he did it in short order by giving Southam the flagship daily it had always lacked. Only the "right" journalists were selected for the Post, and the direction was thus set for the rest of the chain. When he quit the country to take his seat in the House of Lords, Black took pains to pass his hard-won newspapers to a like-minded owner in Izzy Asper. If the continued losses of the National Post force the Aspers to sell in order to keep CanWest afloat, you can be sure they will do likewise and ensure the newspaper ends up in the "right" hands.

1 comment:

GonzortheOmnipotent said...

Thank you Marc for that historical recap and the analysis. Tis a shame Tubby was convicted only of his lesser crimes. Until his Order of Canada is revoked it will be difficult to look at those little lapel pins without laughing.

BTW, when one looks at all the comments following Martin's G&M piece one has to marvel at how low the level of political debate has sunk in Canada. Anyone who calls Torstar "left wing" really has no idea what the word means.

Keep up the good work.