Thomson

"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"

"Power Corporation of Canada, the holding company Nesbitt and Thomson envisioned, was designed to serve a number of purposes. First, by setting it up as a joint-stock company they would control, Nesbitt and Thomson could participate in a large number of hydro¬ electricity developments without throwing all their wealth into the venture. The holding company offered greater buying power with a pool of investment money raised through a share offering. Power Corporation thus offered diversification of investments: by spreading the investment risk among many passive investors, they reduced over¬ all risk by leaving reinvestment of the pool in the hands of managers with expertise in the field."

"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."

"Through North American Recreation Industries, Power formed a partnership with Los Angeles-based National General Corp. (a movie- theatre chain) and the Montreal Bronfman family, with its shopping centre and mall interests, to create the Canadian theatre chain, Na¬ tional General Cinemas. Power under Thomson and Turner had the vision to see the potential of putting smaller-screen theatres into shop¬ ping malls and office buildings, and had seven in place by 1968. Plans were under way for expanding the theatre chain in step with the shopping-mall building craze."

"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."

"The 5-percent second preferred shares were profitable for a number of other reasons. They carried a dividend guarantee of $.60 annually. The shares were issued with a $12 par or face value, but could trade on the market above or below that value. So, if the 5-percent second preferred shares increased in value, and he chose to sell, Thomson would profit even more than his 50-percent premium. Then, a condition of the 5-percent second preferred shares was that they were redeemable from date of issue until 31 May 1978 for Power common shares. The risk Thomson had taken, and heavily hedged with the share-swap premium and guaranteed dividend, was that Power performance under new management would push up share prices. So, if Thomson wanted to cash in his 5-percent second preferred shares, and the common shares were trading at a better price, he could redeem the preferreds for common and sell the common. As long as he played conservatively over the long term, Thomson would win handsomely."

"These people had often expressed a belief that newspapers were good, prestigious investments, highly profitable when run well. They were even more profitable when operated in groups that could offer major national and regional advertisers advantageous package deals. By this technique, smaller, local newspapers, which always had trou¬ ble attracting high-profit national and regional advertising, could par¬ ticipate in profits. This consolidated income from package deals, as the Thomson, Southam and other publishing groups show, can make newspapers that were marginal earners into lucrative profit centres. The earnings strength of groups could also cut the costs of modern¬ ization through economies of scale in purchasing equipment and sup¬ plies and by having only one management group direct the modernization efforts."

"Ultimately, investors bought into Power because of the people who ran it, the investments they chose, the judicious management they exercised over its holdings, and the continuing flow of dividends. Nesbitt and Thomson’s performance justified investor confidence. Even during the Depression the company paid regular dividends on preferred and common shares, except for 1933-36, when common share dividends were suspended. Even so, Power paid off a bit of its debt each year during the Depression."

"Thomson: I delegate completely to editors and local managers the authority to determine their own editorial content. In that respect I think I am rather unique."