Laurentide

"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."

"Laurentide’s expansion program peaked in 1965, by which time it had been a lucrative Power investment for a number of years. The combination of share dividends and management fees made a hand¬ some, consistent return on Power’s investment. Then, in 1965, another finance company, Atlantic Acceptance Cor¬ poration, failed to meet payment on a short-term promissory note, went into bankruptcy and threw the finance industry into chaos. The failure resulted from then-common, but dangerous, bookkeeping prac¬ tices that Atlantic had followed. The money markets responded by panicking. Assuming every finance company was run like Atlantic, they cut off credit to all finance companies, and existing loans were called in. Laurentide wasn’t exempt from industry accounting practices that distorted its financial picture; the apparently healthy company was in financial trouble. As Laurentide’s corporate mentor, Power couldn’t afford to let Laurentide fail, if it wished to maintain its influence in investment circles. So, Power exercised its voting authority on Lau¬ rentide to force change, new operating guidelines and conservative accounting practices. Saunders and Saxton resigned, and a new presi¬ dent was brought in to clean up the accounting mess. This also required direct injections of Power capital into Laurentide of $12.7 million over the next three years to carry the company through the cash squeeze and to cover bookkeeping losses. Laurentide was recovering, but was still costing Power money, when Paul Desmarais came on the scene. But concurrent with the Laurentide troubles, Consolidated-Bathurst Ltd., the pulp, paper, lumber and packaging company, was also ailing."