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Black sells Hollinger, SEC could block deal


Well-Known TRIBEr
Its about time!

From Monday's Globe and Mail

An embattled Conrad Black made a deal to sell his Hollinger newspaper empire yesterday, but the sale is by no means a certainty and could still be blocked by U.S. regulators.

The arrangement to sell Toronto-based holding company Hollinger Inc. to a British conglomerate came after a weekend of dramatic developments that saw Lord Black's New York operating company, Hollinger International Inc., declare an all-out war against the media baron and kick him out of the chairman's job.

On Saturday, Hollinger International unveiled a massive legal claim against Lord Black, his lieutenant David Radler and his holding companies. It demands repayment of at least $200-million (U.S.) in "excessive, unreasonable and unjustifiable" fees and payments. Unfair transactions "diverted and usurped [Hollinger International] corporate assets," the suit alleges.

Fighting back, Lord Black said in a letter to the Hollinger International board yesterday that the litigation is a "desperate attempt to prevent me from completing a transaction for Hollinger Inc. ....."

Mr. Radler, in a statement, said the lawsuit "lacks any factual or legal basis."

The takeover bid for Hollinger Inc. was launched by Britain's Barclay brothers, who own The Scotsman newspaper, the Ritz Hotel in London and many other businesses.

It would see Hollinger Inc., which is still run and controlled by Lord Black, sold for about $424-million (Canadian). The Barclays' Press Holdings International Ltd. would also assume about $182-million in company debt.

Hollinger Inc. holds 73 per cent voting control in Hollinger International, which in turn owns the group's media assets.

In a statement yesterday, Lord Black acknowledged that "it will be distressing to part from the Telegraph newspapers, the Spectator, the Chicago newspapers and The Jerusalem Post," the main assets in the Hollinger group. But he added that "these fine titles must not be hobbled any longer by the current controversies and financial uncertainty. They will be in good and caring hands, and we will be able to focus exclusively on resolving current legal and public-relations concerns."

But sources have cast doubt on whether the Barclays will ever be able to consummate the deal.

Hollinger International's board is expected to review the proposal carefully, and the U.S. Securities and Exchange Commission could attempt to block it in court if it sees fit, sources say.

The Barclays sent an olive branch to Hollinger International in the form of a letter saying they would like to meet with the board as soon as possible and have no intention of interfering with the work of investment bank Lazard LLC, which has been hired to examine a possible sale of Hollinger International assets.

The latest turmoil surrounding Lord Black and his media companies began on Friday, when the SEC obtained an injunction from a Chicago court that limited Lord Black's power at Hollinger International. It ensured that he couldn't interfere with the investigation being undertaken by a special committee of the Hollinger International board.

And for the first time the regulator alleged that certain Hollinger International employees "falsified" corporate books and records, and that the company failed to disclose material information relating to certain deals.

On Saturday, the complaint filed in a New York court by Hollinger International detailed many of the incendiary findings of the special committee, and pointed the finger at Lord Black and his colleagues for improperly stripping money from the firm in the form of management fees and "non-competition" payments.

Lord Black and former deputy chairman Mr. Radler "freely used the company's coffers, financed by its public shareholders, to finance their own lifestyles and to support [their] independent pursuits," the complaint said.

Many payments they, and others, received were not authorized by the company's board, or were ratified after the fact based on "misleading, incomplete or inadequate information," the complaint alleges.

Included in those "unfair" payments was $80-million (Canadian) paid to Lord Black, Mr. Radler and others by Winnipeg-based CanWest Global Communications Corp. to ensure they didn't compete with Canadian newspapers CanWest bought from Hollinger in 2000.

Over all, Lord Black showed "contempt" for public shareholders, the filing said. It quoted one internal e-mail from him where he told another executive that Hollinger International "served no purpose as a listed company other than relatively cheap use of other people's capital."

The complaint listed more than $90-million (U.S.) in non-compete payments that the board wants repaid by Lord Black, Mr. Radler, two other executives and Lord Black's holding companies.

It also demanded the return of more than $110-million, out of $224-million in management fees paid since 1996. These fees were routed to executives through Lord Black's private holding company Ravelston Corp., but were "grossly in excess of the cost ..... of providing such services," the complaint says.

Sources say the company has not yet completed its analysis of these fees and that the total amount it will eventually demand, when the case goes to court, could be much higher than $200-million.

Lord Black, who was ousted as chief executive officer of Hollinger International in November, was relieved of his job as chairman at a meeting of the company's executive committee Saturday night.

Sources say the company decided to take the action after it became clear that Lord Black was not going to meet a Sunday deadline to make an $850,000 first instalment payment on $7.2-million in unauthorized fees he had earlier agreed to repay. Lord Black was also threatening personal lawsuits against some directors, and was unwilling to follow a standstill agreement that was to prevent him from selling his stake in the company, sources say.

Lord Black's lawyer John Warden said yesterday that "like other recent actions, this is an improper attempt to usurp the authority of the Hollinger International board."

Lord Black remains a director of Hollinger International, and he is still chairman and CEO of Hollinger Inc.

In his letter to the Hollinger International board, Lord Black said he refused to make the instalment payment because new documents show that some of the payments were in fact authorized. Some of those documents were initially withheld from his lawyer, he charged.

"As a result of these discoveries, I am not obligated to and do not feel it is appropriate to return these non-compete payments to the company," he said.

The special committee of Hollinger International's board has not finished its work, even though the New York lawsuit outlines the major "big ticket" items — the non- compete payments and the management fees — it is most concerned with.
Alex D. from TRIBE on Utility Room