Paul Desmarais

"Desmarais is diplomatic in dealings with peers and employees, a man who puts a premium on loyalty, whether given or received. He achieves what he does because he can count on the loyalty and respect of the people who execute the details that realize his visions. He earns that loyalty and respect by providing responsible, authoritative lead¬ ership and giving loyalty and respect to his people."

"Mulroney was involved in bringing together Paul Desmarais’s Montreal-based Power Corporation and Barrick to form Barrick Power Gold Corporation, which would test the gold mining opportunities in China. Munk’s long-time colleague Neil MacLachlan was named president of the new company. In November 1994, also with Mulroney’s active involvement, Barrick Power signed letters of intent with China's gold agency, China National Gold Corporation."

"Paul Desmarais,"

"Bronfman arrived at the hour appointed for the meeting and was ushered to the door of Desmarais’s boardroom. The curtains were drawn and the overhead lights were turned low. Desmarais was seated at the head of the table, haloed in the pool of light cast by a lone desk lamp at his side. Bronfman had to walk the dim length of the room to join Desmarais, the host, in the light."

"The tccf debt was paid off by Desmarais over the next few months through the sale of some tccf assets. Levesque also kept 12 percent of tccf and control of f-i-c Fund Inc., a tccf subsidiary. Over the next year, Desmarais traded or sold some of tccf’s holdings to f-i-c in return for more tccf shares, until Gelco finally controlled more than 57 percent of tccf."

"Anything was possible, though; and that was the real reason for the walks, to speak of life and plans, ambition and luck, opportunity and the future, and to explain that opportunity is available to anyone ready to see it and take the risks to reach for it. So, when they walked together, Noel instructed Paul as he had instructed his own ten children and many of his other grandchildren when they came to visit. He believed that it’s important to teach the young what you have to offer; the more they know, the better equipped they are to succeed in this world."

"It was an odd situation, because Desmarais was habitually author¬ itative and responsible — the true qualities of leadership — whether operating as a sole proprietor, a senior partner, or within a joint-stock operation. In the last case especially his habits served him well, because he was too undercapitalized to realize his plans without the many partners that come with control of a public company. And with Gelco he was establishing the track record by which he would be judged in future ventures."

"Desmarais required manoeuvring room because he was stalking big game — more companies that were underperforming in profits, div-"

"Desmarais has never become a public politician, though he has been encouraged to do so; yet he understands politics because it’s a part of the power game, and interacts well with politicians, keeping in touch with all who matter. Since the Duplessis days he has made a point of ensuring some personal contact with every Quebec premier, whatever his political stripe, and every Canadian prime minister."

"The bus company was the focus of Desmarais’s business life, and he did nothing extraordinary. He managed his business to make it grow and prosper, which reinforced the reputation he had established in Sudbury as a man who could run a bus company efficiently and profitably and who paid his bills and debts fully and on time. He also put his earnings to good use, investing them in growth opportunities."

"It’s debatable whether the proviso was a real condition or a joke. Either way, it illustrates that a certain rapport developed between the two. This marks an important turning point in Desmarais’s rise. He was acting upon his principle of looking for the key man and doing business directly with him. In this case, dealing with Duplessis in"

"The situation is no less different today, at a higher level. Desmarais enjoys a “nice-guy businessman” reputation. Now, no man who has achieved what he has in only 36 years is a complete pussycat. On the other hand, those people who agreed to speak about him (most on guarantee they wouldn’t be identified), who know Desmarais or have worked for him, consistently described him as gracious and polite, a man of iron will but great subtlety of mind, who doesn’t need to resort to brutal or brutish tactics to win."

"Another of Desmarais’s techniques was to make his way to his office through the bus service area, rather than by the front door, which bypassed the operations area. This helped him keep in touch with his employees and see what was going on, without undermining the authority of his subordinate managers."

"The future looked good, but Desmarais was still operating only in the middle ranks of corporate leadership. If he settled for what he had, if he believed he had achieved all there was to do, he would stagnate. That’s not how the game is played. Once on the ladder of success, you climb until the rungs run out, or you step off, but you don’t stop, because then others climb over you and maybe push you off. It’s an undignified way to leave the game."

"Paul Desmarais’s higher education also played a large part in his development, not only because it broadened the scope of his educa¬ tional experience, but because it also exposed him to contacts and friendships that would be important in future. The contacts made in younger days are important; they offer a view of an individual in the making, which lets the watcher know the stuff of which the person is made. Once they’re adults, then, these people know who can be trusted and how far; armed with a measure of one’s partners or ad¬ versaries, business becomes immeasurably easier to conduct. That’s why the children of the powerful or aspiring English are sent to preparatory schools like Upper Canada College before going to universities having the cachet that comes of being populated and patronized by the ruling class, like the University of Western Ontario or Queen’s. For the Franco-Quebecois, the prep schools were Loyola and Brebeuf; the university was Laval. The Franco-Ontariens pre¬ ferred the University of Ottawa, a small, bilingual men’s university that bridged English and French cultures. It was J. N. Desmarais’s alma mater, and Paul’s elder brother Louis studied there for a while before going on to McGill University in Montreal. After graduating from high school in Sudbury in 1947, Paul Desmarais followed his father and brother to the University of Ottawa."

"business than Levesque’s. To Desmarais, tccf represented one thing: assets that could be converted fairly quickly into the cash he needed to grow faster and achieve his vision, a holding company that owned control of companies with good profits and capital growth. A cor¬ poration like that would generate the kind of cash that would allow Desmarais the widest leeway in business dealings."

"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.”"

"economy in search of dynamic investment opportunities. Besides wanting to keep control of electrical utilities in Canadian hands, the partners wanted to profit from being the agents through which acceptable foreign capital could be funneled into the Canadian utilities industry. Third, utilities companies were costly ventures that came regularly to the market with attractive stock offerings in order to raise capital for development, growth or diversification. They were coming to the"

"nodded agreement that it looked good as Desmarais explained its merits. Then Beattie pointed to the key numbers and asked where the funds would come from. Desmarais raised his eyes from the plan and said the money would come from Beattie. Beattie looked at Desmarais, picked up the ash¬ trays, the wallpaper rolled together with a snap, and Beattie showed Desmarais the door. Desmarais had set the ground for his battle. The rest of his creditors, who included the tax department, commercial lenders and suppliers, had already agreed to the plan. The creditors were ready to accept some cash immediately and payment over five years of the balance owing them from Sudbury Bus Lines, if Desmarais could swing a deal with Inco. Desmarais kept up the pressure on Inco, consistently pushing his plan and meeting with Inco personnel to negotiate some sort of deal involving the Copper Cliff run. Inco management knew it needed a reliable bus service between Sudbury and Copper Cliff. Desmarais was offering a plan that would guarantee the service. At the same time, Desmarais had drawn into the picture the man¬ agement of Local Lines, one of the regional bus lines, which carried passengers from points within Sudbury along routes outside the city limits. It was a company experienced in the economics of rural and inter-urban bussing, and in the strange schedule needs of the Copper Cliff run. It was also the company that had sold the Copper Cliff run to Sudbury Bus Lines in 1949, when the inter-urban route had been profitable. Desmarais didn’t let up on Inco executives. They finally agreed that the Copper Cliff run was essential to them and that they would have to pay for it. So they gave Desmarais his $138,000; it was neither gift nor loan, but a “purchase” of a guarantee of continued existence for the Copper Cliff run. Then Desmarais ensured the ex¬ istence of the run, and the survival of his company, by getting rid of it. He ceded the Copper Cliff run to Local Lines, which could operate the essentially inter-urban line at a profit. Desmarais then distributed that portion of the $138,000 earmarked for initial payments in his debt rescheduling plan, and got on with turning his urban bus operation to greater profit."

"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."

"So, while restructuring was simplifying Desmarais’s task of bol¬ stering income, it still didn’t deal with Power’s debt. Personally, he still didn’t have complete control of Power. Desmarais’s final moves in 1970 — all of which were intertwined in a complex shifting of assets, cash and debt — solved Power’s debt problems, Gelco’s debt problems, Desmarais’s desire for control, and improved Power’s in¬ come picture. Step One: In early December, Power sold its oil and gas holdings for $13.25 million and paid off Power’s $12 million debt, about which Power’s backers, the Royal Bank, were becoming edgy. The edginess resulted because not only did Power carry a large debt; so did Gelco, the Desmarais-Parisien holding company through which they held their Power shares. Step Two: A week later, through Gelco, Desmarais bought the rest of the Power 10-vote 6-percent participating preferred shares that Thomson held through Wamock-Hersey International, for $7.2 million. At this point, Thomson was left with just under 2 percent of the voting power in the company that his father had helped found, and Desmarais had well over 50 percent of Power votes, with just under 19 percent of the company equity. Step Three: Since Desmarais now owned majority control of Power, it could no longer be viewed as an “English establishment” corporation. So, he sold to Power for $19 million the Gesca Ltee. income debenture that Power had sold to Gelco in 1969 to defuse public and government criticism that an “English establishment” company controlled the"

"He began in 1951, when he was 24, home in Sudbury on a hiatus from law school, not sure if the legal profession was for him. The family-owned bus company needed managing and he needed some¬ thing to occupy his energy. So, he took on the bus company and found, and showed, that he had the entrepreneurial spirit — the entrepreneur being no more and no less than an enterprising individ¬ ual. He turned the money-losing Sudbury Bus Lines into a money¬ maker by sharply defining what the business was really about and rationalizing the company’s management and operations. He began eagerly, applying his gut feelings about business as well as the the¬ oretical information gained from university studies in commerce. Initially, Desmarais employed a limited and narrow strategy — strategy being the general definition of overall and mid-to-long-term goals. His goal was very short-term: to see if he could succeed in business, before deciding on law school. Tactics are the plans by which a strategy will be implemented, and his were to turn Sudbury Bus Lines into a profitable business. Desmarais succeeded. By the age of 28, he had turned the bus company around, settled its debts of about $350,000, banked $100,000, and had professional management in place, running the company along lines he prescribed. The excitement of making the bus company work"

"Thomas’s parting words included the family imperative: “I have suc¬ ceeded in doing better than my father, and I expect you to do better than I.”"

"to do was mount the stage. The only problem observers saw was Desmarais’s lack of the cash to buy controlling shares in Power Cor¬ poration. Desmarais didn’t share their concern. Power Corporation was a company with assets of about $265 mil¬ lion, with control or significant influence in direction of companies worth about $1.5 billion, and suffering cash-flow problems. In com¬ paring these figures with those covering the Desmarais holdings — $75 million in assets in companies worth $2.5 billion, with no cash¬ flow problems — we perhaps see another reason why Desmarais was the logical man to move on Power: the economy with which he deployed assets to maximum efficiency. Acquiring control of Power would mean a huge increase in the asset base of a man who views assets as trade goods for use in achieving specific goals."

"position. His shopping list, as always, was simple and straightforward: he wanted undervalued, underperforming companies with valuable assets that could be cashed in and reinvested to greater profit else¬ where. It would help if the key man in the operation wanted out, but Desmarais was also ready to convince the key man in any seemingly faltering operation of the benefits of selling to him. The nice thing about going shopping with a list of items you want is that you generally find them. It also helps if the people who can help you get what you want know what’s on the shopping list; the more eyes and ears that are alert to opportunity, the faster it’s uncovered."

"debts had to be covered simultaneously, but the company as it operated when Desmarais stepped in wasn’t generating enough revenue to do so. The company’s one advantage was that the bus business is a cash business; as long as the busses roll out of the bams each day, some hard cash rolls in. Desmarais’s task with Sudbury Bus Lines was straightforward — keep it operating and bringing in cash, while fig¬ uring out how to earn more, cut costs, and make the debt manageable. Defining the task was simple; execution was another matter."

"While all this was going on Desmarais and Jean Parisien, the ac¬ countant who had helped him with Sudbury Bus Lines, formed Trans¬ portation Management Corporation Ltd., a partnership, with Desmarais as senior partner. Here Desmarais was setting up a new company, rather than buying an existing one. He was no longer content to buy what was available; he was now ready to bid for bus lines that weren’t being put up for sale. Transportation Management, a holding company, was going to be the umbrella under which he would build a transportation empire. The holding company structure would provide a system for manage¬ ment of tax and partnership matters while ensuring privacy, but would also provide centralized management for non-transportation elements of the empire Desmarais and Parisien were planning. Bus companies usually came with real estate — the land and buildings that housed administration, maintenance and operations; inter-urban bus lines had terminals with concession stands and restaurants. If Desmarais were to expand into a number of bussing operations, it would make more sense to run the bus companies as bus companies and have the holding company manage the real estate and properties, rather than have each bus company run its own real estate operation and duplicate man¬ agement jobs and costs."

"The plan’s many parts fell into place in late February, 1969. It worked this way: 1. Investors would purchase 194,000 shares (19.4 percent) in Great- West Life from Great West Saddlery at $140. 2. If Saddlery accepted, Power Corp. and Canadian Pacific Invest¬ ments (cpi) would provide funds for Investors to buy a further 307,000 Great-West Life shares from all shareholders. 3. Investors would pay back Power and Canadian Pacific by issuing 3 million Investors common shares at $12 each and 1.6 million preferred shares at $25 each. 4. If Investors couldn’t acquire those 307,000 additional shares, Power and cpi would buy the 194,000 shares purchased from Saddlery. In late February, Investors offered $140.29 cash per share to Sad¬ dlery. The offer was accepted. The same offer was presented to the Great-West board as the one that would be made to shareholders. The board examined the offer and informed the shareholders that the $140 per share suggested by Investors was fair. Investors then offered to purchase 307,000 shares"

"With thoughts of law school behind him, Desmarais repeated his turnaround success on a larger scale. Then the momentum of his success drove him down the path of buying undervalued, under- performing companies and turning them around, making them prof¬ itable. Each time he succeeded, he would retrench, consolidate his position and roll up his fortunes again, always increasing the size of his holdings by geometric leaps and bounds rather than in short, arithmetic steps. Whenever he expanded the scale of his operations, Desmarais also had to decide if he was going to expand the scope of his ambitions. Simply to repeat success on a similar scale didn’t appeal to him. This is adequate for the individual who undertakes a venture purely for the monetary rewards, but for the person who has become addicted to winning, each subsequent success must provide a bigger charge, a greater reward, a more fulsome benefit, to justify the effort. Therefore, he had consciously to decide to continue playing and, if the decision was to play on and expand the scope of his ambition, the physical bounds of the strategy had to expand. Because the op¬ portunities within the business he understood were limited in Sudbury, when the opportunity arose, he expanded the geographical area within which he operated to include Ottawa, then Quebec City, then the provinces of Quebec and Ontario. When he reached the limits of the business he knew, he found other pursuits and expanded the vision. The tactical doctrine1 he employed had to grow accordingly, but it became, increasingly, the concern of the people he recruited, the managerial talent that could attend to the details of business so that he could nurture the vision of the empire — the grand strategy. This infrastructure of valuable human resources provided him with the support services he needed to achieve his vision; it had to be made up of employees or partners capable of subordinating their ambitions to Paul Desmarais’s, or believing they could achieve their ambitions by helping Desmarais achieve his."

"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."

"which they so excelled. They traded their assets to acquire control of Power. The deal worked this way: 1. Power created a special 5 percent second preferred share issue of 10,000,000 shares at $12 per share ($120 million total). 2. The number of 6 percent participating preferred shares — the ones that carried 10 votes each, and dictated control of the company — was increased. 3. Enough of the 5 percent second preferred shares were offered to Trans-Canada Corporation Fund shareholders on a one-for-one trade for Power to acquire all tccf shares. 4. Gelco received 57 percent of the Power second preferred shares offered for purchase of tccf; the remaining 43 percent of tccf shares were redeemed from their holders, making tccf a 100- percent owned and controlled Power subsidiary. 5. Then Peter Thomson traded a bit more than half of his 6-percent participating preferred shares of Power — the ones that carried 10 votes each — to Gelco on a two-for-three swap for the new 5- percent second preferred shares (with no votes). 6. The trade gave Desmarais voting rights through Gelco on Power’s board slightly greater than those of Thomson, who held his Power shares through a recently created holding company, Wamock- Hersey International, which held a number of Thomson’s non- Power investments. 7. Between them, Desmarais and Thomson controlled about 61 per¬ cent of Power’s votes and, consequently, Power’s board. 8. Desmarais became chairman and chief executive officer and Peter Thomson deputy chairman. 9. Desmarais and Thomson entered into a voting trust, whereby Thomson’s voting shares were voted by Desmarais."

"While Desmarais was moving to Montreal, Transportation Man¬ agement was fulfilling its role. Smaller local and inter-city bus lines in rural Quebec, including those in Levis, Rouyn-Noranda and Sha- winigan, and those serving areas outside municipal Montreal, were bought and brought into Transportation Management. Paul Desmarais was now master of Quebec’s bus transportation industry. Desmarais’s taste for growth was fully developed now; he was on the verge of making the transition that would set him on the path to control of Power Corporation. But that wasn’t where he was con¬ sciously heading. Paul Desmarais was in transportation — that was his opportunity. His vision was to build his empire on transportation, to reach the heights of Canadian corporate position and power by conquering time and space in Canada and the United States. He would build a bus transport network that spanned North America by acquiring interstate bus lines in the United States, then expand from Ontario into Western Canada. But Desmarais quickly learned he was casting covetous eyes on Greyhound territory, and Greyhound wasn’t going to let him in. He had hit a big wall of competition, the entrenched interest of a large, wealthy, continental operation that had the economic power to break him if he were foolish enough to engage it in head-on competition."

"diversification. He had to get into a business that provided cash flow without leaving him vulnerable to periodic interruptions. But he needed cash to buy that kind of operation. The answer to Desmarais’s pressing need for ready, sizable amounts of cash appeared in the form of Gelco Enterprises Ltd. Gelco8 was originally Gatineau Electric Co., a Gatineau Power subsidiary that owned and operated a small power distribution system in Ontario prior to 1948. Ontario Hydro bought the system in 1948, and Gatineau Electric Co. became a dormant company. It was revived and renamed Gelco in September 1961, when Gatineau Power was paid $12.5 million as compensation for expropriation of its New Brunswick prop¬ erties by that province’s electric power commission. The $12.5 million windfall was given to Gelco in return for 3.3 million Gelco common shares and a 30-year $7.5 million debenture. A debenture is a fixed-interest security issued by a limited company in return for a long-term loan. In its most general form, a debenture is much like a home mortgage: a long-term loan secured against property — the assets of the business. The Gelco common shares were then issued to Gatineau shareholders as dividends, two Gelco shares for each Gatineau share held."

"The pool-of-light technique was not, by the way, entirely a Des¬ marais original. A version of it was used earlier in the decade on Calgary millionaire Max Bell, a major shareholder in Canadian Pacific Railway. He owned The Albertan, a now-defunct Calgary daily news¬ paper whose editorial offices and presses were on land leased from Canadian Pacific’s Marathon Realty. Marathon was going to raise the lease rates on the land by a substantial amount, and Bell went to see Rod Sykes, Marathon’s man in Calgary (and a future mayor of the city), to protest, argue, and maybe browbeat his way out of the increase. Calgary legend has it that Sykes, at the time a man of substantially less power than Bell, greeted Bell with the pool-of-light technique, defusing and diffusing the power that Bell was trying to bring to bear on him. He steadfastly refuted Bell’s arguments and veiled threats, saying the increase was for the good of the shareholders. Bell gave up the fight and eventually lauded Sykes to the CP board for his performance."

"Most notable among this group, besides Paul Desmarais, was Albert Frere, a man about Desmarais’s age, who seems a Belgian counterpart of Desmarais. He came out of the petite bourgeoisie of Charleroi, Belgium’s steel-making region, where he started in business in the late 1940s by taking over from his father a small, steel-chain man¬ ufacturing plant. As he traded for steel to make his chains, Frere discovered he had a certain skill as a deal maker. He soon acquired his first steel mill, which was in financial trouble, and turned it around. By 1960, Frere had bought control of a major Charleroi steel works. He soon became a pivotal figure in the Belgian steel industry, owner of a large production facility and an important steel-trading company that were quickly making him a major player in the European industry. By the late 1970s, Frere had created the umbrella company under which most of the Charleroi steel industry was reorganized. Then, in a brilliant coup, Frere sold the entire operation to the Belgian gov¬ ernment at a sizable profit, even as a global steel glut was causing prices to drop. On top of the earnings from the sale, Frere’s steel¬ trading company continued, by the sales agreement, to act as agent for steel sold from the Charleroi region and received a fixed com¬ mission per tonne sold, no matter the selling price."

"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."

"The company was a likely target for a Desmarais takeover on several major counts: it was underperforming, which fact was reflected in low share prices; but it had a large asset base, cash flow, and the potential for improvement and growth if given a strong management team. The only drawback was that cb stock was widely held among a number of active investors, and none, save Desmarais, appeared as the key man with a large block of stock. The positive factors outweighed the absence of the key man in this instance, and Desmarais made a calculated gamble based on the fear and greed of shareholders. He gambled that existing cb shareholders would be willing to dump their cb shares for whatever they could get, rather than suffer deeper losses. So, Desmarais made an offer for control of cb in spring 1970, even though Power was still painfully cash-poor. Desmarais played his only chip, Power stock, cb shareholders were offered a trade of 2.5 Power shares for each cb share up to 51 percent of cb common (voting) stock. As cb was trading for about $21 and the Power shares were about $10.75, the trade was worth $27 per cb share, roughly a one-third premium."

"To expand Montreal Trust by building new branches in new lo¬ cations would have been so expensive and time consuming that the fully staffed new branches would have come on stream slowly, at a prohibitively high unit cost. So, in a characteristic Desmarais-inspired move, Montreal Trust executives, with the consultative aid of Power staff, looked around for a “storefront” financial-services operation that needed a new owner, or was redundant to the existing owner. Every middle-ranked financial institution was examined. Even some of the smaller Canadian banks that were closed or merged in the unfortunate failures and near-failures of 1984, 1985 and 1986 were examined for purchase and merger with Montreal Trust, but couldn’t pass muster because of their outstanding liabilities and potential for future trouble. The eventual object of Montreal Trust’s affections became Credit Foncier, a subsidiary of Montreal City District Savings Bank, which had been for sale for about a year because it didn’t fit the bank’s plans. The deal raised Montreal Trust’s asset base from $3.27 billion to $6.28 billion and gave it 22 additional “storefront” branches. Credit Foncier brought with it a clean balance sheet, good earnings and a healthy mortgage portfolio, an important consideration given that most of the domestic problems faced by financial institutions since 1981 have sprung from their real-estate loan portfolios. Credit Foncier was quickly integrated into Montreal Trust’s oper¬ ations, and its branches soon carried Montreal Trust’s green and white logo."

"Overall, most of Power’s diversification, especially by acquisition, had occurred during the ’70s, when the tax regime and mounting inflation made it cheaper for industries to buy greater capacity, rather than build it or create diversified divisions. New facilities were built only as a last resort. As in the Abitibi decision to go after Price, the logic was simple. Inflated prices made for inflated profits, which had to be spent quickly before inflation eroded the value of the earnings. Physical assets were appreciating in value at a rate equal to, or greater than, the rate at which money was being eroded. So, in a year of 9-percent inflation, the purchase of a fully fitted and operational factory that appreciated at a rate of 30 percent meant a 21-percent increase in capital value. The money had been put to good use. Conversely, if building that factory and getting it into production were to take a year, the money committed to it would be eroding at a rate of 9 percent per year. Inflation would increase the cost of"

"So, when Desmarais has gone on the acquisition trail, he has gen¬ erally gone with borrowed money, a sackful of Power and Power- subsidiary shares to trade for other shares, or the backing of business allies. He uses each of these factors, along with their tax implications and any relevant assets, as bargaining chips in his deals. He deals because that’s the fun and challenge of business. Financing a deal through creative management of assets, rather than through simple cash transactions, forces him to work some wizardry so that he retains enough control over his world to feel secure in taking further steps. Where a share swap was arranged, the traded shares were eventually redeemed. Debt incurred to acquire a company was generally trans¬ ferred to that company, unless tax implications encouraged Power to carry the costs. When debt was transferred to the company purchased with the debt, the acquisition’s management was encouraged to retire the debt as efficiently as possible, or convert it to some non-control equity like preferred shares. And where allies came into play, Des¬ marais put out markers — for future considerations, aid, or non¬ intervention in other acquisitions."

"The planning process itself is fascinating, akin to the way a general sets and follows a battle plan. He defines a goal and the time frame within which it must be achieved, given the resources available to maintain his army in the field. Enroute to the goal, the general stage- manages the battle, constantly correcting and adjusting for factors affecting the timetable — weather, fuel consumption, resupply ca¬ pability, and such. The need to plan continually, and work with plans while being flexible enough to change them as needed, keeps the good leader alert, anticipating events and acting as he sees fit, rather than getting caught in them. Desmarais has conducted business this way throughout most of his career. He has been a flexible, imaginative and creative planner, negotiator and financier, a businessman who kept ahead of economic conditions and the various rules of the business games, and prospered. At times, Desmarais has come off as a short-term planner shooting for pure profit; other times he’s been building for the future. He appears to have been everywhere at once doing everything. Sometimes he’s a gambler; at others he’s a speculator. Overall, he appears to want to be the person running the casino."

"Desmarais saw a great opportunity in Gelco. It had a $ 10-million investment portfolio, but it could be bought for whatever the 3.3 million shares were worth on the open market. Demand was high for the shares after they were issued, in fall 1961, at $1.20, and prices rose to $3 at year end. After the initial euphoria and share trading, though, the investment and management rationales underlying Gelco were examined and found wanting by the market, and prices declined to a 60-cent low in summer 1962. Desmarais was keeping an eye on Gelco. It’s likely he held a block of shares in the company, which made it easier to watch its progress; shareholders have access to more information about the progress and management of a company than the general public, and can also acquire lists of all other shareholders. In July, 1962, Paul Desmarais was in the bush near Sudbury, treating some of his Sudbury Bus Lines employees to a few days of fishing at the boss’s expense. The bucolic peace of the fishing camp was broken when a message arrived from Montreal that Gelco’s prices had collapsed to 60 cents and showed no sign of revival. Desmarais rushed back to Sudbury, flew to Montreal and took the first connecting flight to London, England. He installed himself in a hotel and offered British Gelco shareholders $1 per share. The same offer was made to Canadian Gelco shareholders by Transport Management Corp. Ltd. Gelco’s shareholders were eager to unload their apparently worthless shares, and by December 1962, after five months of buying, Trans-"

"By the time he acquired Trans-Canada Corporation Fund, Des¬ marais had position. His companies and employees dealt directly with clients; he was the dealmaker. The tccf acquisition put him in the offensive position. He had accumulated the resources and was big enough to go head-to-head with a major corporation, but he didn’t have to. He occupied a beautiful situation. Canada’s corporate world in the 1960s was, essentially, ossified and backward-thinking, led by old-line “old-boys” who weren’t professional business people. They resisted change and were unable or unwilling to accept that Canadian society and culture had changed since the 1930s. To a young man who had prepared himself to be a professional and successful owner-operator on a large scale, they were sitting targets. Desmarais didn’t even have to adopt costly offensive measures. By using guerrilla and flanking tactics, even though he was in an offensive position, by not risking too much of what he had already earned, by moving quickly and planning well ahead, he appeared unpredictable to those he challenged. This enabled him to infiltrate the established corporate world, and claim from it the bits he wanted."

"Perhaps that is the case: learn the ropes, look for the right conditions and circumstances, and eventually you’ll manufacture the rope. How¬ ever, while business is the art of applying people- and organizational skills, there has to be the will, the intense desire to succeed, to achieve. And what’s behind the desire? Ask the people who climb Everest, or quit safe “real” jobs to fulfill the organic drive to make music, or paint, or write. Ask anyone who’s building a small idea into a big business. Ask the marathon runner down the street, or the community leader who takes on a project because there’s a dream that must come true. Their answers will be worded differently, but the sentiments will be the same: the air is sweeter, the sky is a deeper blue, the earth is electric, life is more exciting when you’re pushing at the envelope of opportunity that surrounds you, driving harder, pushing longer, achieving more. Rising to challenge with joy, feeling the quickening of the soul, the tremendous rush of adrenaline — there’s the key. It comes of risking and winning, especially when the risk is calculated, and the player is primed and ready for the challenge and yearning to play. This is the winner’s game plan: learn the rules, do your research and homework, and meet the challenge by applying your skills, abilities and talents. Then, take a moment to recover from the psychic kick of victory, retrench, recharge, target the next challenge and storm in again for higher stakes, bigger risks."

"Desmarais started in business by taking over a family-owned bus company that needed careful, professional management to make it profitable. In just 18 years, by 1968, he was in control of Power Corporation, then only a $250-million conglomerate. Since then he"

"The men he found admirable operated the way Desmarais operates, with a mix of skills critical to success. They defined problems and framed solutions, then solved the problems. These are the components of strategic thinking and tactical implementation, management tech¬ niques proven successful by military and political figures throughout history. They have become part of the jargon of modem business, though most business people are still struggling to grasp their full importance. Yet establishing a strategy is a simple planning process: defining goals, realistically calculating the risks and costs in achieving them, examining one’s resources, and deciding what, if any, expenditure is appropriate to achieve the goal. That’s what Paul Desmarais was up to in the early 1960s — seeking what was worth having, figuring out how to have it, then getting it. If it appears that achieving the goal will bring the expected rewards, the next step is establishing the tactical plan — outlining what steps will be taken, at what times, to achieve the many little goals that together build to the main goal. Most important of the elements of the tactical plan is the definition of concurrent and consecutive actions: consecutive activities must be performed in a particular series; con¬ current activities run parallel to others."

"As he gathered wealth and a measure was taken of his abilities by other players, Desmarais accumulated more power. The operative definition here is that power is the ability to influence and direct others, while being able to resist influence and direction from others. This isn’t to say that all of the wealthy are powerful, or all of the powerful are wealthy. A rule of power is that if you don’t use it, you lose it, and the ineffectual wealthy are as powerless as anyone else."

"In this case, there was nothing in it for Desmarais. If he were in business for recognition and glory, publicity or a public image, he would already have it. Instead, he cultivates a private image, though he has occasionally granted interviews when it suited his purposes. There’s even a rough correlation between the times he has agreed to be interviewed and significant points — winning, losing, or drawing — in his career."

"So Desmarais also learned and applied the notion that 50.1 percent voting power is absolute control, but in the modem world of corporate capitalism, where corporations might have thousands of small share¬ holders, it’s possible that the owner of a relatively tiny percentage of voting stock has effective control, as long as that person is the largest single shareholder. Economists, securities commissions and business theorists differ wildly when defining the breaking point, so any expert and any number could be quoted; the reality is, though, that there are companies like Bell Canada and American Telegraph and Telephone whose controlling shareholders own less than one percent of voting stock."

"Success with the company earned Desmarais $100,0003 by 1955, when he was not yet 30. By then married to Jacqueline Maranger, whom he had known in high school and who was trained as a nurse, he resumed law studies at Osgoode Hall, though he kept ownership of Sudbury Bus Lines. But then Pierre Genest, Desmarais’s old room¬ mate at the University of Ottawa, told him that Gatineau Bus Lines, the Ottawa-Hull service, was for sale. Desmarais bought the company and moved to Ottawa to manage his new acquisition. He never got around to completing his law degree."

"When flexibility was required, because of some change in the ex¬ ternal factors that affected his business — information, people, fi¬ nances or tax regulations, for example — he adapted to continue surviving and prospering. He didn’t become so wedded to the sole tactic of buying and turning around companies that he missed other opportunities. He just adopted new techniques, as when he learned the reverse takeover, a grandiose name for a simple merger in which a smaller company gains control of a larger company by letting itself be bought out. As necessity dictated, he added to his tactical repertoire and moved up in the leagues of corporate play. As he moved up, the quality of the competition became a critical factor, too, since the psychic jolt of winning is proportional in impact to the complexity of the components of the play."

"Desmarais’s efforts to rebuild the bus company’s fortunes are the stuff of entrepreneurial mythology: hard work by some individual whom everyone judges to be a dreamy-eyed eccentric for pursuing a losing venture; the struggle to survive and turn that venture into eventual success; and the former doubters claiming to have known from the start that the venturer was actually a genius. “It was the best the bus company was ever run, once he got it straightened out,” said Pete Lafontaine, a driver for Sudbury Transit, who drove for Desmarais in those days. “The equipment and morale were never better, before or since he took over. The company’s problems were twofold: operating costs and heavy"

"So the Copper Cliff run was Desmarais’s nemesis, but also the bargaining chip that would save his bus company. All he needed was someone with whom to bargain. Logically, that was Inco’s manage¬ ment, which needed reliable transportation for its many workers living in Sudbury who didn’t own cars and had to make the daily 19 km round trip."

"Tactical doctrine is the body of principles and philosophical guidelines that determines the tactics used in a given situation, i.e. economical deployment of resources. Such a set of guidelines ensured that detail work was always dis¬ patched, so Desmarais could keep his goal, success, firmly in sight, and pursue it with single-minded purpose. No matter how many diversions, digressions, interesting and profitable sideshows and obstacles showed up en route, the course could be adjusted — almost by habit — to get back to the most direct path to the goal."

"Throughout this period, Desmarais worked with a skeleton office staff, himself and a secretary, to keep down administrative costs. Sudbury Bus Lines had the best drivers and mechanics in the city when he took over. They were loyal to him because he was the old boss, Mrs Desmarais’s son, taking over and saving their jobs. He recognized that good, reliable, loyal people were among his major assets, and he earned their loyalty to him personally by ensuring that everyone who worked for him got paid something, without fail, promptly at end of shift Friday, even if it meant he himself went home without being paid and empty of pocket."

"He worked out a five-year financial projection for his company on a roll of wallpaper, so that he could get all the figures and plans on one sheet. He then found out who at Inco was responsible for ensuring employee punctuality and productivity — it was vice-president Les Beattie — and presented the plan to him. It detailed how Desmarais intended to turn the company into a sound, profitable operation that would ensure Inco’s workers would always have a ride to and from work. It required, however, a cash infusion of $138,000, which Des¬ marais didn’t want to borrow, as it would only add to the company’s debt and defeat the restructuring plan."

"So, tccf was simply a vehicle of growth, another rung on the ladder. As assets with definable values, cash flow and growth poten¬ tial, the tccf holdings were like a savings account, to be drawn upon for the cash for further acquisitions in the areas where Desmarais wanted to concentrate assets. Most of the tccf holdings were traded and sold during late 1965 and throughout 1966 so Desmarais could retire tccf debt and raise operating and reinvestment cash. Some went into a new real estate division, Trans-Canada Realty Corp. Some assets were sold back to Levesque, among them a publication called Le Petit journal. What had seemed in early 1965 a simple sale and resale was actually the beginning of a corporate reshuffle that, at its end almost a year and a half later, left both parties holding the cards they wanted in the first place. It’s interesting to note that by 1968, only two of the tccf"

"for his future actions. He looked at the overall business and found the weakness, the Copper Cliff run. Then he asked what the company’s business was — municipal or inter-urban transportation — and decided which it would be. Meanwhile, to keep the company going, he needed help, and asked for it. It’s interesting that although he was popularly judged to be on a fool’s errand, Sudburians helped him, for whatever reasons. Once he decided Sudbury Bus was an urban bus company, Des- marais had to jettison the Copper Cliff run. But he also needed cash to implement his recovery plan. So, he used the route as the bargaining chip to raise the money he needed, and he targeted the key man with a vested interest in helping him get what he wanted. Once he succeeded in his plan, he got on with trimming the business and leading the company to profit."

"His only problem was with the key man in the scenario — the mayor of Sudbury. Targeting the key man has always been a Des¬ marais strategy: he finds the person who has a vested interest in helping him get what he wants. The mayor was not one of those people, and Desmarais finally had to call it quits on Sudbury and make another characteristic move — a quick, clean break, with no recourse to arbitration, conciliation or outside interference."

"As Paul Desmarais operates at a level of business far removed from the experience of all but a tiny minority of us, he also ensures that his rewards reflect the risk and work involved, though he has long since left the period when he was playing for huge wins and had to sustain huge risks. The momentum of his business is such that risk isn’t as critical a factor in his business dealings as they were in the ’60s, because Desmarais isn’t taking long shots to build his power base quickly. These days he can shop through deals that are brought to him, or that his people uncover, and pick the ones worth making, judging return on investment, whether the deal is right for the cor¬ porate mix, and if it consolidates or expands Power’s already con¬ siderable corporate power base."

"capital in investments with returns coming in the long term. He pre¬ ferred investments that carried their own operating costs and generated profits from the start and for the long term. His idea was to meet consumer demand by providing the medium for entertaining the mar¬ ket (racetracks); advertising the goods (newspapers); transporting goods and individuals (busses); and providing their insurance, savings and investment programs. Significantly, all of his holdings were in op¬ erations that were essentially cash businesses — just like busses. His companies would also own the land, and perhaps the buildings on the land, in which his businesses would operate. Before long, he would control a company that was in the business of lending money to finance purchase of consumer goods."

"Once the Power-TCCF merger occurred, though, Desmarais only had his 31-percent voting stake in Power. Though he had effective control of Power, he didn’t have absolute control, and if La Presse were brought into the Power portfolio, Desmarais could technically be in violation of the act. So, before the deal was consummated, Compagnie de Publication de La Presse was pulled out of the tccf portfolio and placed under control of Gesca Ltee., a direct subsidiary of Gelco. Gesca held the voting stock of Compagnie de Publication de La Presse Ltee., and Desmarais met the conditions of ownership of La Presse. However, to maximize the potential return on the Power deal, a $19,750,000 income debenture secured by the assets of La Presse was issued to Power. Consequently, 100 percent of the equity of La Presse was controlled by Power, as were all of La Presse's earnings, but voting and management control stayed in Desmarais’s hands, according to the law.2"

"Conversely, his people are the ones who become the annoying and persistent seekers after whatever the boss says he wants. Desmarais designs his corporate world as he wants to see it. His numbers man does the computations to see what the cost will be; the tax wizard considers the implications. Research is done, outside consultation taken where necessary, plans and outlines are prepared. Desmarais hears out the details and takes the counsel of his advisors, but then he and he alone makes the decisions. He’s the boss, without question, and if he decides the deal is worthwhile, it gets done, with function¬ aries taking care of the details according to the boss’s master plan, driving people to get it done."

"Also, Power needed a coherent philosophy and direction. It needed a chairman who could take decisive control, provide the company with a vision and impose his will to achieve it. There was confusion as to who was actually running Power, Peter N. Thomson, the chair¬ man, or W. I. M. Turner, president. Power appeared out of control, going in too many directions at once. Interestingly, it looked like Gelco did when Desmarais took control of the company — an in¬ vestment portfolio that wasn’t coherent and didn’t work to the benefit of shareholders."

"The first phase in Desmarais’s business career ended the day he realized he wasn’t going to build an empire of the road. He then made a momentous decision to diversify his corporation. It was a hazy concept as yet, and had no real shape or form, but Desmarais was"

"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."

"This is the essence of achievement: recognizing that any plan, grand or otherwise, while daunting in its entirety, is achievable, as long as the planners break it down into groups of smaller goals that together achieve the big goal. So, to Desmarais’s “I want to do this,” Parisien would define who had to do what, when, why, how, and for how much money."

"This isn’t to say that Desmarais didn’t have his sights set on a spot at the pinnacle of Canadian business; but he wasn’t ready, and the opportunity still hadn’t presented itself. The moves he made to di¬ versify his interests put him in the mainstream of Quebec and Canadian business. From here he could observe the players, learn the game, define opportunities and learn about what was worth buying. He was acting on the military principle that time spent in reconnaissance is time well spent. Montreal Trust provided him with a vantage point. He bought enough shares in the staid, old-line financial institution, having all the cachet of the “right” history and the “right” connections, that he was invited onto its board of directors in 1962. It was an ideal spot from which to conduct a reconnaissance of Canadian business."

"By 1965, the company had completely revised its investment strat¬ egy, re-adopting Power’s original stance as a forthright and aggressive investment and management company. The policy was now to estab-"

"Over the next six years, he collected directorships the way some people collect handkerchiefs. In the process he got to mingle with Canada’s business titans, people like Lord Thomson of Fleet (Thom¬ son newspapers), E. P. Taylor (Canadian Breweries Ltd., Argus Corp.), Fred Mannix Sr. (Mannix Industries, the Loram Group of Industries), and James Richardson (Richardson Securities). What he learned, Des¬ marais could never have gotten from a book. It’s a measure of the man and his mentors that he moved as far and as fast as he did, surpassing their achievements while most of them were alive to wit¬ ness his growth."

"could be had by whomever could break the stalemate. Desmarais found out from Saddlery that they would sell their Great-West holdings for $140 per share. He took this information to The Investors Group board of directors, over which Power wielded no small influence (33.1 percent or effective control). The potential investment was analyzed according to Investors’s normal procedures, and methods of financing an offer were examined."

"Their guiding principle was concentrated diversity — make primary investments in a limited number of different industrial and commercial sectors. Future purchases would be made with an eye to how they could complement and be integrated into the existing holdings. This was diametric to Power’s previous grab-bag approach to investment, which was to hold onto investments collected over 50 years simply because they were investments, no matter their performance."

"Under the direction of Desmarais and Thomson, Power and Wamock- Hersey International (whi) traded holdings. Power got whi’s shares in companies in which it wanted to increase its holdings in return for those Power holdings that whi wanted, including the leisure industries."

"“Right now I have to readjust in certain areas. At the present time there’s plenty of work just getting this new set-up into shape. You make your plan and accomplish it; then you stop and consolidate. That’s the stage we’re at now.’’2 Desmarais prefers investments that require minimal cash down, have a cash flow from which the debt they carry can be paid, and show early profits that can be sustained for the long term. The Power"

"In no uncertain terms, Desmarais gave the banker his walking orders, detailing what he wanted done, when and how. Desmarais hung up, turned to the reporter and remarked that, while bankers were important to business, you had to put them in their place, otherwise they thought they ran your business."

"“It [the purchase] moved him from being a small operator, largely in the French Canadian milieu, to the big leagues,” said journalist Amy Booth. “It was a major turning point, and the Royal Bank was clearly involved. One day Desmarais was doing his own thing and the next day the Royal Bank was effectively his partner. Booth was referring to the large block of Desmarais-owned (through Gelco) Trans-Canada Corporation Fund shares which the Royal Bank held as security for loans and returned so he could have bargaining chips when working out the Power deal. Until the Power acquisition, the Royal Bank had bankrolled most of Desmarais’s deals since 1955, but not out of any conscious attempt to become kingmakers. “I don’t think they’ve ever thought that far,” said Booth. “Maybe the bank would like to think so now, that it set him up in Power, but I don’t think that was the case. Bankers aren’t that smart.”"

"To put this in perspective: in four years, Power, under Desmarais’s direction, raised $1 billion in cash. Most of that cash was raised during a series of internal reorganizations that also resulted, by the end of 1986, in Power’s having greater control over its assets than it had in 1981, as a comparison of the 1981 and 1986 organization charts shows. The money was raised through sale of Power portfolio holdings and a series of equity issues from Power and its subsidiaries. The pattern to the sales and the equity issues indicates that a tight focus was drawn on Power’s design for the 1980s and 1990s and adjustments were being made."

"The drawback to capturing and holding the defensive position is that it fosters a defensive attitude, often without the occupier’s re¬ alizing it. The occupier suddenly moves from anticipating events, trying to get ahead of them to see what awaits farther down the road, to a static position from which he reacts to events. All of Desmarais’s moves at this time — acquiring with borrowed money, running with a market that assumed oil prices and inflation would continue to rise, and piling up Power’s heavy debt — were reactive, reflecting an inflation-driven, conventional corporate wisdom. His buying into cp and establishing the Pargesa consortium seem proactive, but the CP purchase was made at the height of market prices, just as the global economy was sliding into a recession that forced a nosedive in share prices and dividends. Setting up Pargesa and shifting Paribas (Suisse) assets was business at its most activist, but it was still conducted in reaction to a situation that had been deemed possible but not probable until it was almost a fait accompli."

"Ontario and Quebec, he would have had to take the offensive against Greyhound, but he realized the costs of doing so would consume all he had laboriously accumulated since 1950. So he performed a flank¬ ing manoeuvre — not only on Greyhound, but on the entire business community — by diversifying, buying Gelco and through it Imperial Life Insurance. In this way, Desmarais, the boss of Quebec’s trans¬ portation business, became a new, small challenger on the Quebec corporate scene."

"When buying small bus companies in Quebec and Ontario, Des¬ marais was the guerrilla, making small gains, avoiding direct con¬ frontation with big players in the bus business like Voyageur (until he bought it), Trailways, or Greyhound. He was also dealing with smaller companies and was closer to the actual day-to-day operations of his core business."

"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)."

"ground against him. To a man who had been brought up to get along with all kinds of people, it went against all reason. It also went against one premise that distinguishes Desmarais’s style as a businessman — if a matter has no bearing on the business at hand, it shouldn’t play a role in the deliberations, planning or execution of a deal. To lose because you were wrong or wrong-headed in approach, planning or execution is one thing, but because of race and religion? Absurd!"

"Unfortunately for Desmarais, once set in motion, a takeover attempt can’t easily be halted. It’s like a poker game. Players can throw in their hand any time they want, as long as it’s their turn to act. Des¬ marais had to wait his turn and fold, or, as some poker players do when they know they’re holding a losing hand, he could bluff."

"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."

"Desmarais bolted upright in his seat. “He asked, ‘What’s the deal? Do you think it’s a good one? Who should I talk to? What’s the game?’ ’’ Pelletier recounted. “He’s always looking for the deal. He loves the thrill of the deal, and has an instinct and initiative for a deal. His mind is always working.”"

"There were subsequent rumours that Power might buy Videotron, which was allowed to buy Tele-Metropole, and Memmotec Industries, which bought Teleglobe. With Desmarais anything, especially the unexpected, is possible, if the price is right. That the price be right is critical, though, to Desmarais’s decisions. After getting caught with overpriced CP stock, he has become more price sensitive. If Desmarais wants Teleglobe and Tele-Metropole badly enough, he’ll find a way to buy them, without paying an outrageous premium just to get control. And because either purchase would be subject to crtc approval, Desmarais would have to ensure the bid was so brilliant that any refusal would constitute a national scandal."

"The arrangement was characteristic of Desmarais, who thinks and plans far into the future, balancing and juggling the intangibles — possibilities, probabilities, opportunities and ambitions. He demon¬ strates the true artistry of business. It is therefore little wonder, as"

"his bankers into terminal shock. Desmarais has used debt as one instrument to finance his ambitions, yet has always been uncomfort¬ able carrying large debt — it leaves a company vulnerable to its creditors and erodes the controlling position of its managers, because creditors, especially bankers, feel they can dictate the conduct of"

"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."

"A self-described student of history and economics and an avid reader of biographies, Desmarais was once asked who had served as his models. “I respect greatly men of strong personalities,” he re¬ plied. “If I have to name some I’d say Winston Churchill, Charles de Gaulle, Franklin Roosevelt, Mao Tse-Tung.”1 At other times he has admitted to a fascination with Napoleon."

"he was blessed by luck. Subsequent to the Gelco deals, Desmarais always tried to target companies that had single or “key man” ma¬ jority shareholders who were willing to sell."

"At the same time, Desmarais made abortive bids for Tele-Metropole ($97 million), which operates a French tv station in Montreal, and Teleglobe Canada ($300 million), the Crown corporation that provides overseas long-distance phone services to Canadians. He also wanted to buy Domtar and Donohue, two huge forest and packaging products companies, for merger with Consolidated-Bathurst. The two had been acquired by the Caisse de Depot et Placement du Quebec under the Parti Quebecois regime in Quebec in the early 1980s. The unsuccessful bids for Tele-Metropole and Teleglobe put a crimp in Desmarais’s plans for the Power Corp. that he hoped to hand over to his sons. Desmarais wanted Tele-Metropole for two reasons, one being that it would make the perfect core corporation for another Power subsidiary he wished to set up and call Power Communications. All of Power’s communications holdings — the daily and weekly newspapers, publishing interests, radio and tv — most of them held through Gesca Ltee., would be grouped in the new company, which would be created much the same way Power Financial had been. His younger son, Andre, a Power vice-president in charge of communi¬ cations holdings, would eventually assume presidency of the new company, as his brother, Paul Jr., had at Power Financial."

"building the small, tightly knit management team of trusted, efficient and loyal subordinates that characterizes a Desmarais management group."

"Also, Desmarais was refining the belief that would colour many of his future ventures: if you’re going to do the lion’s share of the work and take the lion’s share of the risk, you should get the lion’s share of the rewards. It’s a reasonable position, but does not address the question of how long those rewards should flow. Does turning a troubled company around at great risk justify the turnaround artist’s reaping benefits 20 years down the line for little more work than monitoring the operation to ensure that it’s running smoothly and efficiently?"

"In late 1964, to gain majority control of Gelco, Desmarais sold to Gelco, for $7.8 million, the assets of Transportation Management, less the shares it held in Gelco. In payment, Gelco issued enough Gelco shares to Desmarais and Parisien to cover the purchase, raising their total holdings in Gelco to 80 percent. No cash changed hands."

"idends and share values, because their assets were deployed improp¬ erly and could be bought cheaply. He had no specific targets, but was watching for whatever toothsome corporate opportunities presented themselves. The vagueness of his plans could cause trouble with minority shareholders; it was obvious, therefore, that Desmarais would eventually have to take majority control, possibly even take the com¬ pany private, that is, buy all outstanding Gelco shares for 100 percent ownership."

"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."

"The attitude Desmarais adopted in the 1960s was that the Gelco strategy entailed the simple acquisition of a company (Gelco) with an unspectacular investment portfolio that could easily be liquidated and reinvested in better-performing investments. In less polite terms, Desmarais was stripping Gelco’s assets for redeployment into more sensible directions. He did, however, ensure that other minority share¬ holders got fair treatment — good dividends, some capital growth — while he pursued his strategy. Besides his dividend-bearing shares in the company, Desmarais earned fees from the companies he managed and from his outside directorships."

"dealing in very large numbers of horses. Fundamentally, he’s not different from any successful business operator anywhere else in Can¬ ada, except for the size of his business. Business is business no matter the level; the same problems and principles apply. Desmarais simply operates with sums and networks at impressively greater orders of magnitude than most of us will ever experience."

"Desmarais went on to Saudi Arabia, where he was looking at business opportunities, not in oil, but in oil money, perhaps to invest it in, or manage it through a Power subsidiary."

"Desmarais turned the company around, but he has been dogged by one major problem throughout his chairmanship of Power: it doesn’t have and can’t generate the tremendous cash flow needed to meet all of its obligations to creditors and shareholders and still provide Des¬ marais with the large lumps of cash he needs in order to build and expand his corporate vision."

"When he gambles, Desmarais the corporate poker player pockets his opening stake once he has some winnings to play with; then he withdraws some of the winnings from each pot, tucks them away, and continues to play with the rest of his winnings. That style of play, when applied to business, constitutes the basic rule of wealth: always consolidate winnings; once they’re consolidated, don’t bet them again, ever. The winnings are now personal property accumulated through risk, and must be protected so they can grow."

"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."

"Imperial was the likely target because it was in the top 10 of Canadian insurance companies in size and earnings and was very conservatively managed. As a result, the company was profitable, and shareholder dividends were growing. Prospects for the future of insurance were bright, as the industry was going through a period of growth and strong stock market performance. Imperial was ideal to Desmarais’s needs. Gelco bought 45 percent of the company for $9 million; it acquired control in early 1964 by paying another $1,249,000 for enough shares to raise its stake to 51.2 percent."

"Desmarais, through holding companies, was going to be the “sig¬ nificant shareholder’’ wherever possible. It became the hallmark of his working pattern to hold a significant block of shares of a company he saw as a good investment. In this way he would be ensured enough seats on the board of directors to exert control through influence or numbers — preferably influence — to maximize profits and, hence, dividends that would flow upward, eventually, to him. By March, 1963, Gelco had enough cash in the treasury to go hunting. The target was Imperial Life Assurance Company of Canada with assets of $332 million. According to one folksy anecdote, Des¬ marais looked in his treasury and saw $10 million. He then ran a finger down the stock listings in a newspaper, hit upon Imperial Life, calculated that buying control would cost $10 million, then bought it."

"Desmarais’s role is, after all, to set the style and tone of his business — it will be efficient and profitable. Management takes its cues and acts accordingly. If the managers fail in their tasks, someone else can be found to do the job."

"Charleroi, Frere targeted for takeover Groupe Bruxelles Lambert (gbl), one of Belgium’s largest closely held holding companies with interests in a variety of international industrial and commercial sectors, in¬ cluding banking, real estate, petroleum, securities and stock broker¬ age, and manufacturing."

"The guessing, however, was based on the failure of the observers to discern the one critical detail common to any major Desmarais deal — the key man. In any major takeover or deal Desmarais had made to date, whether it was on the Sudbury-Copper Cliff bus run, or the Power acquisition, Desmarais had always targeted and dealt with a key man, the one who had the authority not only to make decisions, but also to negotiate deals."

"The spur for growth was the need to improve the amount of cash that actually came to Power in its cash flow. By year end 1970, Power’s investments showed respectable earnings, with dividends from subsidiaries bringing in $4.4 million and other investments bring¬ ing the total to $7.8 million. Unfortunately, the earnings still didn’t cover all of Power’s (Operating, bank interest and dividend costs. The shareholders had to bear the brunt of the shortfall, and Power dividends were suspended for the fourth quarter. Power’s share values then dropped on the stock market, a normal reaction to what appeared to be a company in trouble."

"During the Power turnaround years, he had continued his habit of travelling extensively overseas. He was able to do so because Parisien was the man on site who oversaw the technicalities of implementating Desmarais’s plans. So Desmarais explored. He discovered opportun¬ ities in the Middle East, in transportation, energy and the provision of financial contacts and services to oil-rich countries. So excited was he about these opportunities that, in 1972, Desmarais directed the pilot of Power’s corporate jet to have extra fuel tanks installed so they could fly non-stop from Montreal to Beirut, Lebanon. Overall, the formula that had worked for Consolidated-Bathurst would work for Power: retrench and consolidate the core of the com¬ pany; ensure it was stable and reasonably secure; then expand to the big markets, Europe and the United States. But the terrain had to be reconnoitered, contacts made and developed — overseas expansion of Power’s business opportunities would take time to develop. But"

"portation Management owned 50 percent of Gelco shares, which were again trading at $3. Desmarais had effective control of Gelco and became president of the company. As president and controlling shareholder, he framed and executed the company’s investment policies and controlled the treasury. He began liquidating Gelco’s investment portfolio because it had positions in many investments, but control in none, and was vulnerable to market forces and decisions of management that it could not influence."

"marais’s vision continued. Growth was to follow three patterns — normal growth of the industries in which Power’s associated com¬ panies operated; diversification through acquisition; and growth by increasing its participation in existing holdings. The prospects for"

"ness. Besides the French investors in Paribas, Volvo of Sweden (through its Swiss subsidiary, Volvo Financial) had a stake in Paribas, as did Belgium’s Groupe Frere Bourgeois, headed by industrialist and fin¬ ancier Albert Frere, a man whose history much resembled that of Paul Desmarais."

"Desmarais’s plan was the same as he had used before: pace organic growth in Power’s holdings with growth by acquisition as one of the ways to pull Power out of its financial and managerial rut. Rumours"

"accumulated capital, a generally clean balance sheet and was well run. Total ownership would bring attractive earnings and access to cash for Power if csl’s accounts were consolidated with Power’s. So the bid didn’t raise many eyebrows, except among csl shareholders, who saw the share-price premium as attractive. By late spring of 1972, Power owned all csl voting stock and almost all of the non¬ voting, making csl technically a wholly owned subsidiary of Power Corporation."

"So, while planning and preparing the changes, Desmarais still kept his eyes open to opportunity that could be capitalized upon concurrent with the Power shakeup. While all the corporate shaping and trading was going on, Desmarais also picked up a plum investment, Great- West Life Assurance Co., that would prove to be a key element to Power’s long-term profitability. Desmarais acquired Great-West in an uncharacteristic manner — he bid against another acquisitor, and completed the purchase without the willing aid and consent of the “key man.” Yet Desmarais dislikes corporate battles. In his 1975 testimony before the Bryce Commission, the Royal Commission of Inquiry into Corporate Concentration, he stated flatly, “I don’t wish to engage in any fights if I can avoid it. I don’t like fights.”4"

"“I suspect he [Desmarais] must have also looked at himself once he arrived at Power Corporation,” said Amy Booth. “Because in the early days, he had been more busy doing than thinking, buying what was available.”"

"That isn’t to say that Desmarais simply waited for people to offer to open doors for him. Even though he was long gone from Sudbury, he was still using the same techniques, letting people know he wanted something and that he would pay a fair price for it. It was up to them to decide if it was in their interests to let him have what he wanted. The reason could have been financial rewards, holding an iou on future favours, or, as is often the case, just the sheer pleasure of playing the role of power-broker, exercising noblesse oblige and grant¬ ing a request because it’s in one’s power to do so."

"Desmarais’s attitude has always been that a company should per¬ form profitably and pay dividends that flow through its parent to the shareholders. If that occurs, he won’t interfere in company manage¬ ment. If, however, a company in which his holding company has a major interest is in trouble, he goes in, pinpoints the problem, defines a solution and monitors its implementation. Existing management is left in place, if it shows it can do the job; otherwise, executives are found who can do it."

"Then, in November 1971, Power offered to purchase all outstanding shares of Canada Steamship Lines for $40 per share, well above their trading price of about $30. The csl purchase was logical and fully in keeping with what it appeared Desmarais was doing. Buying ownership rather than control may have seemed a bit excessive, given Desmarais’s tendency to buy just enough of a company to get control. But csl had low debt,"

"Now when the cb board looked down the table at Desmarais, they looked at the man who should be in control, despite their earlier cool reception of Power’s bid. Desmarais stepped in to save cb, even though he didn’t own control of it, because the board backed away from opposing him. This didn’t constitute any active support for what he might plan; opposition simply faded into the wings and didn’t get in his way.3 The first thing he did was convince the board to offer the presidency of CB to Power presi¬ dent Bill Turner, who accepted. A man who enjoyed Desmarais’s confidence and thought like Des¬ marais, Turner acted as Desmarais would. He weeded and reshaped CB management into an effective team that replaced the divided groups of Consolidated and Bathurst managers, who had never learned to work together. The new team was given a clear definition of its job: to put cb to rights as an efficiently run, modem corporation."

"Today Power’s plans and ideas may sound rather mundane — after all, people turn on radios or televisions and pick up satellite-delivered signals every day, or fly off somewhere for a holiday or ski weekend. But in their day these were blue-sky notions, as exotic as artificial intelligence may sound to some in today’s world. Such new concepts"

"The opportunity that kept cropping up was Power Corporation. His attention was brought to it by friends and business associates, some of whom sat on the Power board; he could also see for himself that Power was a company waiting for the Desmarais touch. As a major Quebec and Canadian holding company, even larger than the Argus Corporation led by the legendary E. P. Taylor, Power was known to all Quebec business people. Its investment portfolio was extensive and spread among many industrial sectors."

"By late 1967, it had been pointed out to Desmarais that Power was a likely purchase for him. By then, enough people who mattered indicated they wouldn’t oppose, and might even welcome his buying control of Power, that Desmarais looked closely at the situation. His bankers, the Royal Bank, also had a hand in Desmarais’s buying control of Power Corp."