Power

"Power Corporation participated in direction of the companies by providing management services, including general direction of the companies, advice on rate schedules, and aid and advice in attracting new industrial ventures to the areas serviced by the utilities. Power also established an engineering and construction division specializing in hydro utilities to provide support services to companies associated with Power. Between 1925 and 1930, Power increased its capitalization by about $42.5 million through a number of share and debenture offerings. In 1928, in a move that would significantly affect future control (as opposed to ownership) of Power Corp., the shareholders assigned 10 votes to each Power participating preferred share. This “weighted share,” which would be hard to pass by Canadian securities regulators these days, was a common device used in stock issues before World War II. It was the technique employed by the founders and driving forces behind a corporation to retain control, with little equity in¬ vestment, while selling other non-voting or single-vote shares to other"

"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."

"When Levesque allowed the tccf takeover, he wanted to keep a few of its assets as components of his future plans. The most efficient way to do so, without disrupting business or affecting asset values, was to sell all of tccf to Desmarais, the willing buyer who would willingly sell him back what he wanted to keep. Levesque used F-i-c Fund, an old subsidiary detached from tccf, as the vehicle for the repurchase. Wamock-Hersey was Thomson’s vehicle to keep the companies he wanted, but first, the Power-TCCF merger had to be completed and Desmarais had to get a firm grip on Power, so that he could start shuffling the deck."

"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."

"The financial problems were easily defined: besides still suffering inadequate cash flows, Power carried a heavy debt load, relative to its income. Debt servicing chewed up Power’s income from invest¬ ments and eroded the dividends that the company could pass on to its shareholders."

"CSL, on the other hand, had borrowed a good portion of the $70 million cash it had paid to Power, essentially assuming the debt Power incurred to purchase csl. Because csl was an operating company with income from operations, it could write off the interest on the debt against income and reduce its taxes. The same could be done with the interest it paid on the debentures given to Power. The reduced income taxes meant higher retained earnings and, consequently, higher dividends for shareholders, in this case, Power."

"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"

"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."