Hollinger International Inc
Hollinger International Inc.
Public Subsidiary of Hollinger Inc.
Sales: $1.05 billion (2002)
Stock Exchanges: Toronto
Ticker Symbol: HLG.C
NAIC: 511110 Newspaper Publishers
Hollinger International Inc. is best known for its ownership of newspapers such as London's Daily Telegraph, the Chicago Sun-Times, and the English-language Jerusalem Post. It also has built up holdings in more than 100 smaller publications. Struggling under a massive debt, Hollinger International began selling off regional publications in the late 1990s. Conrad Black, controlling shareholder of parent company Hollinger Inc., was forced out as Hollinger International CEO in late 2003 by angry shareholders. A U.S. judge later blocked the sale of his holding in Hollinger Inc. to London's Barclay twins, opening Hollinger International's assets to a field of dozens of prospective bidders.
Building a Global Media Empire in 1985
Conrad Black was born on August 25, 1944 in Montreal, Quebec. His father, George Montegu Black, Jr., was a prominent businessman who managed Canadian Breweries, a division of the Argus Corporation, in the 1950s. Conrad Black grew up dreaming of becoming the chairman of Argus Corporation, a dream made remarkable by the fact that he accomplished it in 1978. Conrad and his older brother, Montegu, were able to gain a controlling interest in Argus in July 1978 by combining the block of shares their father had left them upon his death in 1976 with shares purchased from the heirs of the company's founding partners for about $18.4 million. For this remarkable accomplishment, Conrad Black was named "Man of the Year" in 1978 by the Toronto Globe and Mail, while Fortune magazine called him "the boy wonder of Canadian business."
From 1978 to 1985, Black set about dismantling Argus, which controlled five corporations, including farm machinery manufacturer Massey-Ferguson, and selling off its assets. By June 1985, he had bought out his brother's interest and those of other minority shareholders. He then purchased a 14 percent interest in the Daily Telegraph, which was England's leading circulation broadsheet newspaper and the newspaper of choice of the country's ruling Conservative party. Black had begun building his global media empire.
By the end of 1985, Black had acquired a 50.1 percent interest in the Daily Telegraph for $43 million, a bargain basement price. Later acquisitions would follow a similar model, with Black stepping in and acquiring financially troubled newspapers. He also created Hollinger Inc. as a holding company for his interests. Hollinger was initially headquartered in Toronto, Ontario, but Black moved the company's headquarters to Vancouver, British Columbia, in 1990.
Acquiring U.S. Newspapers in 1986
Fearful of the costs associated with big-city newspapers, Black was also interested in small-market newspapers that focused on local news. Through his U.S. subsidiary, American Publishing Co., Black acquired a large number of smaller newspapers in the United States. American Publishing Co. was formed as a privately held, U.S.-based subsidiary of Hollinger Inc. in late 1986. Its first acquisition involved 16 small-town U.S. newspapers. Through a series of acquisitions, it grew to rank as the second-largest newspaper publisher in the United States in 1995 by number of titles and the 12th in terms of circulation. It owned 393 newspapers, including 96 dailies, by 1996.
In March 1994, American Publishing completed its acquisition of the Chicago Sun-Times, which at the time was the ninth-largest circulation metropolitan daily newspaper in the United States. With a daily circulation of 535,000, it was Chicago's number two newspaper. The cost of the Sun-Times was approximately $180 million. In April 1994, American Publishing launched an initial public offering (IPO) to raise money to pay for the acquisition. American had reported net losses in 1993 and 1994. At the time of its IPO, it owned 340 newspapers and was the fifteenth-largest U.S. newspaper group based on circulation. The IPO was expected to raise $101 million, and American's shares were traded on the NASDAQ. According to Security and Exchange Commission (SEC) filings, American Publishing Company was renamed Hollinger International Inc. in February 1994.
Venture into Australian Publishing in the Early 1990s
In late 1991, a group led by Conrad Black's Telegraph plc bought Australia's John Fairfax Holdings Ltd. out of receivership by purchasing a 25 percent interest in the Australian newspaper publisher. Fairfax published the Sydney Morning Herald, Melbourne's Age, and the Australian Financial Review, among other publications. Australian law prevented Black as a foreigner from owning more than 25 percent of the firm. Although Black's 25 percent interest gave him effective control of Fairfax, he was concerned about the possibility of an Australian media mogul acquiring controlling interest. Black appealed to the Australian government to allow him to increase his ownership to 35 or 50 percent, but permission was never granted. As a result, Black agreed to sell his holdings to a New Zealand investment firm at the end of 1996 for $513 million. Although disappointed, Black's group reportedly made $300 million on its investment. While happy with his profit, Black could not resist a parting shot at Australia, telling the Financial Post, "It's not a politically mature jurisdiction and foreigners should understand what they're getting into there.… [The prime minister] is basically an old-time Australian nationalist." In his letter to shareholders in 1996, he again complained about "Australia's capricious and politicized foreign ownership rules" and complained that foreigners were "treated with official bad faith and insurmountable suspicion."
In 1992, Hollinger purchased a 21.5 percent stake in Southam Inc., Canada's leading newspaper publishing company. By 1996, Black was unhappy with the way Southam was being managed, and Hollinger was seeking to boost its ownership of Southam to 41 percent by buying out the co-controlling minority interest of the Power Corporation for $294 million. Black planned to replace most of Southam's independent directors.
Black obtained an advance ruling from Canada's Bureau of Competition Policy, which reviewed the proposed Southam acquisition for any overlap of ownership of newspapers competing for advertising in any one market. The Federal Court of Canada subsequently dismissed a motion by the Council of Canadians opposing Black's acquisition of Southam. During 1996, Hollinger International increased its interest in Southam to 50.7 percent. As Canada's largest publisher of daily newspapers, Southam published 32 daily newspapers and 58 non-daily newspapers. Its principal publications included the Gazette (Montreal), the Ottawa Citizen, the Calgary Herald, the Vancouver Sun, the Province (Vancouver), and the Edmonton Journal.
Going Private in 1996
In mid-1994, the Daily Telegraph was being challenged by Rupert Murdoch's Times for market leadership in England. When the Daily Telegraph lowered its cover price from 48 pence to 30 pence, the Times immediately dropped its cover price from 30 pence to 20 pence. In September 1993, the Times had lowered its price from 45 pence to 30 pence. The price cuts had boosted the Times' circulation from less than 400,000 copies a day in mid-1993 to average daily sales of 517,000. With its latest price cut, the Times expected its daily circulation to climb above 600,000. The price war was having an effect on the Daily Telegraph 's readership, the figure that was used to set advertising rates. For the period from December 1993 to May 1994, the Daily Telegraph' s readership declined 9.9 percent to 2.49 million, while the Times' readership increased 10.6 percent to 1.32 million, according to the National Readership Survey. The Telegraph' s CEO Dan Colson told the Financial Post, "The Telegraph remains the undisputed market leader in the quality segment."
Between October 1995 and August 1996, The Telegraph Group Ltd. became a wholly owned subsidiary of Hollinger International, which paid a total consideration of approximately $455.1 million for all of The Telegraph Group's outstanding shares. By taking The Telegraph Group private, Black was following the advice of investors who warned that it would be difficult to raise equity capital in London markets. Share prices of the Telegraph had fallen dramatically in 1994 as a result of the price war with Rupert Murdoch's Times. Subject to lingering criticism in the British press and government, Black's comment to the Financial Post was, "Never underestimate the conservatism or xenophobic tendencies of the British."
In July 1995, Hollinger Inc. announced it would sell its interests in the Daily Telegraph and Southam Inc. to its U.S. subsidiary, American Publishing Co. Analysts saw it as a move to strengthen American Publishing's shares, which were traded on the NASDAQ market. American owned the company's U.S. flagship newspaper, the Chicago Sun-Times, along with other newspaper chains. The move would also mean a transfer of assets out of Canada and into the United States, where Hollinger felt they would have a higher value.
- Conrad Black acquires a 50.1 percent holding in the Daily Telegraph.
- Hollinger acquires a 21.5 stake in Southam Inc.
- American Publishing Co. subsidiary is formed.
- American Publishing acquires the Chicago Sun Times, goes public, and is renamed Hollinger International.
- Hollinger increases its Southam holding, acquires the rest of the Daily Telegraph, and goes public.
- A 40 percent interest in a U.S. community newspaper group is sold.
- Black is forced to resign as Hollinger International CEO.
- Hollinger begins auctioning off its assets.
By September 1995, the plan had changed somewhat. It now involved more of a corporate reorganization of American Publishing and Hollinger Inc., with the Canadian company Hollinger Inc. creating a $1 billion newspaper company with headquarters in Chicago. The Canadian-based Hollinger Inc. would still sell its interests in British Telegraph plc and in the Canadian company Southam Inc. to American Publishing, thereby more than doubling American Publishing's annual revenues of $422 million in 1994.
At the same time, Hollinger International Inc. would be established in Chicago as a new umbrella company over American Publishing Co. F. David Radler, chairman of APC and president and chief operating officer of Hollinger Inc. told Crain's Chicago Business, "We're consolidating our assets into one group with greater access to U.S. capital markets, which are the best capital markets in the world. We're de-Canadianizing ourselves and creating an American company."
Conrad Black was named Hollinger International's chairman of the board and CEO. Radler assumed the duties of president and COO. Black's strategy of entering the U.S. capital markets paid off in February 1996, when Hollinger International went public with an IPO that raised $380 million. As described in the company's annual report, "For most of our stockholders, Hollinger International Inc. is a new creation grouping a unique collection of high quality international newspaper assets. For other stockholders, it is a relaunch on a very broad basis of American Publishing Company, which continues as a core asset of Hollinger International."
As Conrad Black prepared to address shareholders at Hollinger International's annual meeting in May 1996, the company was under two credit reviews for having too much debt. Both the U.S.-based Standard & Poor's Corporation and Canada's Dominion Bond Rating Service put Hollinger International on credit watch. Standard & Poor said that a downgrade was inevitable "in the absence of Hollinger taking significant steps to ease its debt burden." The company had about $445 million of debt outstanding, plus debt it had taken on to increase its stake in Southam and debt it might take on to complete its purchase of the Telegraph. Moody's debt-rating service soon followed with an announcement that it, too, was reviewing its rating of Hollinger's debt. At the time, Hollinger International was the third largest newspaper chain in the world behind Gannett Co. Inc. and Rupert Murdoch's News Corp.
In August 1996 Hollinger International completed its acquisition of the minority shares of Telegraph plc, taking the company private and making it a wholly owned subsidiary called Telegraph Group Ltd. In addition to publishing various editions of the Telegraph, the Telegraph Group published Spectator magazine and owned 24.7 percent of Australia's John Fairfax Holdings Ltd., which would be sold later in the year for $513 million. As part of the financing of the acquisition, Hollinger International sold 11.5 million shares of its Class A common stock and 20.7 million shares of preferred stock to raise $301.1 million. Those proceeds, together with related bank financing, were used to pay for the acquisition.
Moving to the United States in 1997
Black began to implement his strategy of moving ownership of his newspaper assets into the United States, where they would be valued higher. In January 1997, Hollinger Inc. announced it would sell almost all of its Canadian publishing assets to its U.S.-based subsidiary Hollinger International for $342 million, excluding working capital of about $181 million. Those assets included Hollinger's interest in Southam and the Sterling Newspapers Company, which owned 26 daily and 49 non-daily newspapers in Canada.
Hollinger Inc.'s other assets included a 20 percent stake in the Financial Post; about 5 percent of Key Publishing, which published Toronto Life magazine; an interest in Toronto's SkyDome; and part of Gordon Capital Corp., a Toronto securities firm.
In March 1997, Hollinger International's stock hit a two-year low, and the company announced it intended to repurchase up to three million of its Class A common shares as well as some of its preferred stock. Since reaching a high of $13.125 in May 1996, the stock dropped to just under $9 in March 1997 before closing at $9.25.
One analyst explained that the company's complex transactions of 1996 and early 1997 turned off a lot of investors, who wanted companies that were easy to follow. John Reidy of Smith Barney Inc. told the Financial Post, "They don't want to talk about EBITDA (earnings before interest, taxes, depreciation, and amortization) or cash flow. Hollinger is an EBITDA and cash flow story, rather than an earnings story." Reidy admitted that Hollinger had a complex capital structure and that the company went through a radical transition in 1996, referring to taking The Telegraph Group private, Hollinger International's IPO, the sale of its interest in Fairfax, and the transfer of assets from its Canadian parent in early 1997.
In April 1997, Hollinger International established a new subsidiary, Hollinger Digital, with offices in the Soho district of New York City. Hollinger Digital would be responsible for managing and making investments in new media properties. One of its management functions would be to coordinate the 90 Web sites of Hollinger's more than 350 newspapers. The subsidiary's chairman and CEO was Richard Perle. Perle was also a director of Hollinger International and former assistant secretary of defense for international security during the Reagan administration. He was known as the architect of Reagan's Star Wars defense program.
In November 1997, Hollinger International announced it was selling about 40 percent of its U.S. community newspaper group. These included 160 weekly, small daily, and free circulation newspapers in 11 states with a combined circulation of approximately 900,000. The buyer was the Los Angeles-based Leonard Green and Partners LP, a firm which specialized in leveraged buyouts. The sale price was $310 million, which Hollinger International would use to reduce debt and finance the previously announced purchase of the Post-Tribune in Gary, Indiana. The sale was completed on January 27, 1998.
During December 1997, Black also told the Financial Post that Hollinger International would probably be cutting back on its acquisitions because prices were too high. He expected to use the $310 million from the sale of 160 small U.S. newspapers to reduce debt, not make acquisitions. As if to calm investors, he promised a more conservative financial approach in the future. "We will not issue stock at silly prices," he told the FinancialPost. "We will not issue non-investment grade paper again. It's a much more conservative company." In the past, Hollinger had relied on high-yield junk bonds to finance its acquisitions. Hollinger's financial executives never seemed overly concerned about the company's debt level, though, because of the company's strong cash flows.
Black noted that circulations were increasing among the company's Canadian newspaper publishing group. The Vancouver Sun was leading with an average weekly increase of 10 percent. "I think we've earned our spurs," he told the Financial Post. "The whole theory of the inexorable decline of newspapers, I still say, is bunk."
For 1997, Hollinger International reported earnings of $104.5 million. Operating income was up, but overall earnings declined from the previous year's levels due to higher taxes, interest payments, and other expenses not directly related to operations. The company benefited from improved advertising revenues in a good business environment. It also took steps to allay investor fears by reducing costs and making other improvements.
In April 1998, the Jerusalem Post announced it would buy 49 percent of the Jerusalem Report, its competitor. It was expected that the two English-language publications would merge their administrative, advertising, and circulation departments while remaining independent editorially. The twice-monthly Jerusalem Report was established by former Post reporters and financed primarily by Canadian businessman Charles Bronfman, chairman of the Seagram Company. The newspaper had lost money steadily since it began publishing in 1990.
Complex Transactions in the Late 1990s
By the end of 1997, Hollinger International owned or had an interest in 167 paid daily newspapers. Its major newspapers were the Chicago Sun-Times, the Daily Telegraph, and the Ottawa Citizen. It also owned or had an interest in 361 non-daily newspapers as well as other magazines and publications. For the past ten years, the company had pursued a strategy of growth through acquisitions. Since 1986, the company had acquired some 400 newspapers and other publications (net of those sold) in the United States, the Daily Telegraph in the United Kingdom, the Jerusalem Post in Israel, and had made significant investments in newspapers in Canada, including a controlling interest in Southam Inc., Canada's largest newspaper publisher. In 1997, it acquired the Canadian Newspapers division of its parent company, Hollinger, Inc.
Hollinger International's history, including that of its Canadian parent, had been characterized by complex financial transactions and an aggressive acquisitions strategy. Since Conrad Black successfully entered the U.S. capital markets with Hollinger International's IPO in 1996, he has sought to calm investor fears and simplify the company's financial structure. In 1996, the company divested itself of its 25 percent interest in John Fairfax Holdings Ltd., increased its stake in Southam Inc., and took 100 percent control of The Telegraph Group Ltd. The following year, it addressed investor concerns by accomplishing three financial goals: 1) it steeply improved operating and net profit; 2) it repurchased some of the company's underpriced stock; and 3) it sold non-strategic assets at advantageous prices. The company also increased its stake in Southam to 58.6 percent. Enjoying a cleaner balance sheet and circulation gains at its major newspapers, Hollinger International appeared ready to consolidate its gains and embark on a more conservative acquisitions and financial program for the future.
Hollinger International sold off 160 newspapers representing 40 percent of its U.S. community newspapers group (American Publishing Co.) in late 1997. A Los Angeles investment group, Leonard Green & Partners, paid $310 million for them. The rest of the community papers were sold to four buyers (Bradford Publications Company, Newspapers Holdings, Inc. of Alabama, Paxton Media Group, Inc., and Forum Communications Company) in August 2000 for $215 million. In July 1998, Hollinger International had acquired two small dailies in West Virginia and Pennsylvania from Thomson Newspapers.
In 1998, after failed efforts to acquire the market-leading Globe & Mail, Hollinger Group founded a national Canadian daily, the National Post of Toronto. CanWest Global Communications acquired a 50 percent stake in the National Post in 2000, along with most of the other Southam papers, for $2.1 billion. It bought the remaining 50 percent stake in August 2001. The Post then had a circulation of 300,000 copies a day.
Conrad Black was awarded UK citizenship in 1999. He renounced his Canadian citizenship after Prime Minister Jean Chrétien refused to allow him to accept a British peerage. The UK then dubbed him Lord Black of Crossharbour.
Black Out in 2003–04
While Black was gaining a peerage from Britain, he would soon be giving up the titles of CEO and chairman at Hollinger International. Shareholders were angered over $200 million in payments to Conrad Black and four other directors. They questioned the reporting of some of these payments, including $73 million in non-compete fees paid by companies that had acquired Hollinger titles, and called for an SEC investigation.
Black was forced to step down as CEO of Hollinger International in November 2003. He and other executives agreed to repay some of the unauthorized payments, though the board was still suing them for $200 million. Black remained nonexecutive chairman, as well as chairman of parent company Hollinger Inc., for a few more months. Black remained the controlling shareholder of Hollinger Inc.
Hollinger International's debts then amounted to more than $700 million. The investment bank Lazards was called in to possibly sell off some of the company's properties.
In early 2004, the Barclay brothers, Sir David and Sir Frederick, bid $326.5 million (£259 million) through their Press Holdings International Ltd. for Conrad Black's holding in parent company Hollinger Inc., which held a 30 percent shareholding in Hollinger International, which carried 73 percent voting rights. If successful, they would assume $140 million in debt.
A Delaware court blocked this sale in February 2004, however. According to the International Herald Tribune, an array of 50 prospective bidders instantly materialized for a chance to acquire assets such as London's Daily Telegraph, the Chicago Sun-Times, and more than 100 smaller publications.
American Publishing Company; Chicago Sun-Times, Inc.; Hollinger International (Canada) Holdings Co.; Hollinger International Publishing Inc.; Hollinger UK Holdings Limited (England); Jerusalem Post Publications Limited (Israel); Midwest Suburban Publishing Inc.; The Palestine Post Limited (Israel); Pioneer Newspapers Inc.; The Post-Tribune Company; The Spectator (1828) Limited (England); The Sun-Times Company; Telegraph Group Limited (England).
Canadian Newspaper Group; Chicago Group; Community Group; U.K. Newspaper Group.
Associated Newspapers; Daily Mail and General Trust; Express Newspapers; Gannett; Tribune Co.
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——, "How Black Plans to Finance Southam Purchase," Financial Post, May 28, 1996.
——, "Debt, Competition Issues Dog Hollinger," Financial Post, May 29, 1996.
——, "Black Pulls out of Fairfax," Financial Post, December 17, 1996.
——, "Analysts Support Hollinger Move," Financial Post, January 9, 1997.
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—update: Frederick C. Ingram