The Investors Group

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

"later. In June, 1972, Canada Steamship Lines, Power’s only directly wholly owned subsidiary, bought almost all of Power’s investment portfolio for $145 million. The sale didn’t seem to make sense. For $145 million, csl bought Power’s investments in Dominion Glass Co. Ltd., The Investors Group, Consolidated-Bathurst and the Gesca $19.6-million income debenture. The deal included Trans-Canada Corp. Fund and through it one of its holdings, Shawinigan Industries Ltd., the interests in Laurentide, Argus, Imperial Life and other Power investments. Desmarais had essentially sold Power to itself, accomplishing an internal reverse takeover. Technically, the manoeuvre was a realign¬ ment of assets, because Power didn’t make any profit on the deal. The $145-million purchase price was book value (the value carried on the books computed as total assets less outstanding debt), paid $70.5 million in cash and $74.6 million in promissory notes with 9.5 percent interest, plus a series of debentures staggered to come due at intervals between 1972 and 1992. The sale solved one problem each for Power and csl. One effect was that by transferring some of its debt to csl, Power gave csl a way to reduce its income taxes."

"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."

"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."