Argus

"later. In June, 1972, Canada Steamship Lines, Power’s only directly wholly owned subsidiary, bought almost all of Power’s investment portfolio for $145 million. The sale didn’t seem to make sense. For $145 million, csl bought Power’s investments in Dominion Glass Co. Ltd., The Investors Group, Consolidated-Bathurst and the Gesca $19.6-million income debenture. The deal included Trans-Canada Corp. Fund and through it one of its holdings, Shawinigan Industries Ltd., the interests in Laurentide, Argus, Imperial Life and other Power investments. Desmarais had essentially sold Power to itself, accomplishing an internal reverse takeover. Technically, the manoeuvre was a realign¬ ment of assets, because Power didn’t make any profit on the deal. The $145-million purchase price was book value (the value carried on the books computed as total assets less outstanding debt), paid $70.5 million in cash and $74.6 million in promissory notes with 9.5 percent interest, plus a series of debentures staggered to come due at intervals between 1972 and 1992. The sale solved one problem each for Power and csl. One effect was that by transferring some of its debt to csl, Power gave csl a way to reduce its income taxes."

"Taylor’s investment policy was to seek companies that were prof¬ itable and widely held, but had no single significant (or controlling) shareholder in the company. Wherever possible, Taylor would make Argus the largest single shareholder in targeted companies, in order to obtain a seat, or seats, on the board of directors. In some cases, Argus actually controlled these companies with as little as 5-20 per¬ cent of voting stock in them. Over time, the clear, tough, sensible and profitable direction offered by its nominees to the boards of Argus- held companies earned Argus influence on these boards quite beyond what its shareholdings warranted."

"company worth $200 million, with influential holdings in companies worth $1-1.5 billion. The Argus shareholdings would be worth sub¬"

"The other Argus holdings that didn’t fit in the Power vision could be sold for the cash to pay off debt incurred to acquire Argus. This was an opportunity for a corporate coup that would not only be extremely profitable, but also stylish and satisfying. The cost of ac¬ quiring Argus control with 80 percent of voting shares and 80 percent of non-voting preferred shares would be about $148 million, for a"

"After Desmarais joined the Canadian Breweries board, Gelco, the Desmarais-Parisien holding company, bought 131,434 common (vot¬ ing) shares of Argus and sold them to the Power subsidiary, Sha- winigan Industries Ltd., in 1969. Shawinigan then bought additional Argus shares to bring its holdings up to 175,484 shares, or 10.4 percent."

"The scenario was almost perfect for Desmarais. Power could afford to buy Taylor’s Argus stock; Power’s credit was good enough to borrow the cash. Desmarais’s holding in Argus plus Taylor’s 10 percent of voting shares would give him a 20-percent voting position in Argus that would warrant a seat on its board. Further steps for control might include a swap of Power treasury shares for Argus shares at a fancy premium, if Desmarais brought to bear his consid¬ erable persuasiveness and convinced enough voting Argus sharehold¬ ers that such a move was in their best interests. If he couldn’t succeed that way, full debt financing for a simple buyout might be arranged, with the debt settled through a quick sale of some Argus assets."

"chips. The companies in which it held stock were healthy performers, paying strong dividends to Argus, which in turn passed on handsome dividends to its shareholders. So, Desmarais bided his time. Mean¬ while, his small holding allowed him to keep Argus, its management and its performance under close scrutiny, to see whether any succes¬ sors were being groomed."