The power struggle between Hollinger International Inc. and its ousted chief executive, Conrad Black, escalated Friday as the media company crafted a poison pill to thwart a takeover, while Black engineered a way to block the sale of any newspapers.
Hollinger International believes it can make the most money by selling its Chicago newspaper group, which includes the Chicago Sun-Times, the Daily Southtown and the Naperville Sun, separately from the rest of the company’s publications, sources close to the company said Friday.
But that threatens a deal struck by Black, the embattled controlling shareholder and former CEO, who agreed to sell his stake in the publishing company last week to British millionaire twins Frederick and David Barclay for $326.5 million plus $140 million in debt.
The board believes the group’s papers, if sold individually, could fetch more than the $466.5 million on the table. But Black is said to be partial to the Barclay deal because it is the only offer so far that will assume all outstanding Hollinger debt and set aside $60 million in escrow to cover any legal liabilities, said sources familiar with the situation.
On Friday, Black moved to handcuff the board from interfering with his planned sale by changing the bylaws of Hollinger Inc., the parent of Hollinger International, where he still sits as a board member. The new rules require any sale of Hollinger International’s newspaper assets to be approved by all of Hollinger International’s board members, including Black, his wife, Barbara Amiel, and long-time ally Dan Colson.
“These steps will ensure that the board of Hollinger International puts the interests of all of its shareholders first in whatever actions it takes,” said Peter White, co-chief operating officer of parent Hollinger Inc.
The adoption of the bylaws would limit the power of Black’s adversaries on the board, who last week set up a separate corporate review committee–excluding Black, Colson and Amiel, by design–to look over the Barclay offer and other possible transactions.
The U.S. Securities and Exchange Commission is looking at whether the bylaw changes violate an earlier court order that bars Black from interfering with an internal investigation into the fees.
But a source close to the situation said the changes may have been crafted carefully enough to not violate the court order and therefore not warrant further action by the SEC.
Hollinger Inc. went out of its way to say that the audit committee and the special committee of Hollinger International “will remain in place, with all of their current powers and authority.”
Nevertheless, Hollinger International shareholders were outraged by Black’s move, saying the bylaws change would ensure his private deal with the Barclays goes through unhindered.
“It’s a very hostile act engineered to preserve a deal [between Black and the Barclays] to the detriment of the common shareholders,” said Laura Jereski, an analyst with Tweedy, Browne Co., which owns 18 percent of Hollinger International. “He made it clear that it’s a hostile action. He chopped the board off at the knees. Those guys can meet for tea, and that’s about it.”
Details of the anti-takeover defense, commonly referred to as a poison pill provision, crafted by Hollinger International directors were not released.
The pill and the bylaw changes were the latest twists in the growing impasse between Black and the Hollinger International board as Black races to sell his stake in the company before Hollinger International strikes its own deal.
On Thursday, Hollinger International’s investment bank, Lazard LLC, began a formal auction process to sell the firm’s major properties. Next week, Lazard will start sending information on the properties to prospective buyers, and it is open to selling the company whole or piecemeal.
