Gesca

"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."

"Though Power incurred a new $ 19-million debt to buy the deben¬ ture, the debt was secured by income from the debenture and wasn’t serviced from Power’s dividend income from other sources. All in¬ come from La Presse and earnings from Gesca’s interest in Les Jour- naux Trans-Canada Ltee. were paid to Power, the debenture holder. The income debenture paid no interest, but its earnings were greater than the interest costs on Power’s new $ 19-million debt. Though Power now carried a larger debt than it had retired two weeks earlier, it caused Power’s bankers little agitation because it was secured by income from the debenture, not from Power’s cash flow. Ironically, the shuffle of debt and assets and assumption of greater debt by Power improved its cash-flow picture without increasing dividend-based cash flow by one cent; it simply reduced the demands made on Power’s dividend income."