Imperial Life

"The structure of Gelco, 75 percent owned by Desmarais and 25 percent owned by Parisien, meant that as Desmarais directed, so went Gelco. As Gelco directed, so went its 57-percent-controlled subsid¬ iary, Trans-Canada Corporation Fund. That meant Desmarais called the shots at Provincial Transport, Les Joumaux Trans-Canada and Imperial Life, and had a major voice in the policies and direction of The Investors Group. Desmarais also held a 15 percent position in Montreal Trust company through Investors.1 Overall, by 1968, the Desmarais-built empire had reported assets of $75 million, and a record of success in controlling or influencing the profitable direction of companies worth about $2.5 billion. Desmarais’s track record showed, by this time, two critical elements necessary to continued success and growth in business. One, he was loyal to and worked well with shareholders and other backers of companies he controlled. Two, when prepared to follow his lead, these “partners” in his success profited. “He’s been accused of being tough on shareholders,” said David Schulman. “And that’s because he can tolerate more risk than some of the people who buy in. But the record shows that those who stick by him do well.”"

"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."

"There was another problem Desmarais faced — money. Gelco’s wealth took the form of Imperial Life and Provincial Transport stock. Gelco was using its earnings directly, or leveraging them (borrowing against them) to buy into blue-chip and speculative investments. In a move to streamline Provincial Transport, Desmarais had also sold Quebec Autobus and used the proceeds to buy the last of the in¬ dependent inter-urban bus operations in Quebec. So, for continued growth, Desmarais had recently issued a $5-million, 15-year deben¬ ture on Provincial Transport Enterprises Ltd. He didn’t want to sell either operation, as they were good moneymakers. Basically, Desmarais had good assets, clean balance sheets, and income, but no surplus large enough to buy 51 percent control of tccf, which would cost about $30 million. This essentially sums up the 1960s for Desmarais: a search for a ready and continual source of cash to finance his vision; and creative wheeling and dealing to acquire the assets that could be liquidated for the cash he needed. When Levesque decided at the end of 1964 that he was going to sell tccf whole, he also agreed that Desmarais would get the com¬ pany. They began working out the details in early 1965, and the final shape of the deal was hammered out that April in the Florida sunshine. Desmarais, through Gelco, would make a public offer for 55 percent of tccf for $28.6 million (2.2 million shares at $13 each). This would be accepted, tccf would, in turn, purchase Provincial Transport and the shares of Imperial Life from Gelco for $31 million. The $31 million would be paid to Gelco, which would use $28.6 million of the payment to pay tccf shareholders for their shares."

"Desmarais moved further to reshape Power by acquiring control of Canada Steamship Lines (csl). Here he used the reverse takeover with a twist: he sold a wholly owned subsidiary of Power, Provincial Transport, to CSL, a company in which Power already held a major stake (45.7 percent). The selling price was $17,820,000, of which $3.8 million was cash. The rest was enough csl shares to raise Power’s voting stake above 50 percent, giving Power majority control of CSL. Power also acquired majority control of The Investors Group in 1970 through share trades with the Canadian Imperial Bank of Com¬ merce and Canadian Pacific Investments, and purchases on the open market. By the end of 1970, Power held 50.2 percent of Investors voting shares directly, a further 13.2 percent indirectly through Im¬ perial Life, and a further 9.5 percent through Great West Life."

"When David Kilgour resigned at the end of 1970, he was replaced by James Bums, who had been Great-West’s u.s. director of Mar¬ keting. A man who enjoyed Desmarais’s support and confidence, Bums orchestrated one of Desmarais’s prime intentions for Great- West — penetration and expansion into the huge, lucrative u.s. mar¬ ket. Desmarais’s other intention, amalgamation of Great-West Life and Imperial Life, never occurred as it was blocked by the federal insurance regulatory agency. It may seem that acquiring and integrating Great-West into Power would be enough to occupy one man’s attention and satisfy his am¬ bitions, especially considering that this was all occurring during the fundamental restructuring of Power. Such is not the case. Desmarais had Jean Parisien, trusty chief of staff, to depend upon to deal with the details of corporate architecture. Parisien, in turn, had inherited the staff of Power and had conducted his shuffling, bringing in some people from his support staff at Trans-Canada, moving out some of the Power staff that didn’t fit in to the new regime, and generally"

"Also working against Campeau’s hopes for financing from within Power were the legal limits on the extent to which an insurance company could participate in an affiliated company (Great-West and Imperial Life were in the Power fold). As well, Power policies on inter-corporate dealings wouldn’t allow major internal financing or cross-guaranteeing of loans to other divisions or subsidiaries. In sum, Campeau found himself in a worse, rather than better, situation to acquire financing. Further, he had lost control of his company and couldn’t direct its destiny."

"which in turn held 51.2 percent of Imperial Life, worth $10.2 million. Transportation Management also held a minority interest in Trans- Canada Corporation Fund (tccf), as well as a portfolio of other speculative and blue-chip investments. Overall, as president and chair¬ man of Gelco, Desmarais commanded a corporation worth a minimum of $20 million, invested in companies with $406 million in assets."

"Transportation Management in turn owned wholly the assets of Provincial Transport, worth about $7.8 million; 50 percent of Gelco, worth about $2 million, which in turn held 51.2 percent of Imperial Life, worth $10.2 million. Transportation Management’s investment portfolio also held, among other investments, shares worth about $2 million in Trans-Canada Corporation Fund, the investment and hold¬ ing company dominated by J. L. Levesque, with investments of $66 million."

"By the end of 1965, Desmarais’s Gelco acquisition plan would be near enough completion that it could be seen for what it was — brilliant in its conception of interlocking wheels within wheels, yet simple in its execution, exemplifying the clarity of vision that seized upon the opportunity. The strategy had been formed because, as quickly as he had acquired 50 percent control of Gelco (as senior in the partnership that controlled the holding company), and as quickly as the redirected Gelco investment portfolio had furthered Desmarais’s ambitions, suc¬ cess wasn’t happening fast enough for him. After Gelco bought control of Imperial Life, Desmarais paused in the acquisition and growth game to consolidate what he had already acquired. To recap: at this point, Transportation Management owned wholly the assets of Provincial Transport, worth about $7.8 million; 50 percent of Gelco, worth about $6 million (at a cost of $2 million)."