The Hand-over

by Elaine Dewar

  The company that made the offer for Union was called Unicorp. Hardly anyone had heard of it. Its chairman, a dapper fellow named George Mann, had owned a smallish real estate/financial services company in Toronto years before, but had made a recent fortune in the US by buying real estate investment trusts, their value growing from about $40 million to over $400 million in record time. Unicorp’s President, Jim Leech, had previously worked for Commerce Capital Corp, a company with newsworthy Liberal connections.182 When Unicorp announced its takeover bid publicly, it had already acquired close to 30% of Union Enterprises’ shares with the help of Jimmy Connacher’s Gordon Capital and a $60 million line of credit from Continental Bank of Canada. Many shares were made available after Leech had conversations with certain managers of the Brascan/Edper group which had been trying for some time to unload its Union shares at a price higher than the market said they were worth. When Mann offered to buy them for a combination of preferred shares and warrants of Unicorp, the deal was done in one day. Unicorp then made a public offering with the same terms.

  This takeover bid was treated by Union as a boil on the body politic. It tried to lance it through appeals to the Toronto Stock Exchange, the Ontario Securities Commission, the provincial Cabinet and an obscure official in charge of the Business Corporations Act. It even bought Burns Foods (the same Burns Foods that had sued Gerald Pencer before he bought Financial Trustco) with new shares in order to dilute Mann’s shareholdings. Nothing they tried worked. So the Cabinet ordered the Ontario Energy Board to conduct a hearing, at which point the OSC held a second hearing, a secret one. The parties reached a settlement, but the OEB hearing went ahead anyway. The prime concern appeared to be, who is this guy George Mann? Who does he think he is to try and gain control of a great old Canadian utility?183

  As reporters covering the story soon learned, control is a complicated issue that cannot be defined solely by reference to who owns the majority of a company’s voting shares. Though George Mann owned the majority of Unicorp’s shares, this question slithered through Bay Street brains: who controlled George Mann?

  The Ontario Energy Board’s counsel soon dragged out into the open the names of those who’d bought Union shares to offer to Unicorp. Many turned out to be entities belonging to, or allied with, the Edper/Brascan group of companies. Edper/Brascan was mainly owned by Edward and Peter Bronfman, cousins of the children of Sam Bronfman of Montreal, but run by Trevor Eyton, a well-­regarded securities lawyer close to Prime Minister Brian Mulroney, and Jack Cockwell,184 a South African-born accountant and extremely able strategist. Edper had been buying control of major companies for years, most notably acquiring Brascan, a venerable operation that made its first fortune building tramways and power stations in Brazil. When Brascan sold most of its Brazilian holdings, leaving itself flush with cash, Edper captured control through a tricky deal mainly executed in New York. At the time of the Union takeover, Edper/Brascan owned important positions in the mining giant Noranda, London Life, a financial company called Trilon, a developer called Trizec, 20% of a bank called Carena-Bancorp, plus a chunk of the Continental Bank which had provided Unicorp with its $60 million line of credit. By 1985, the Edper/Brascan group, along with another affiliate called Hees, controlled about $30 billion in assets,185 $10 billion more than Onex controls now. The hearings made clear that the Gordon Capital people had called the Edper/Brascan people to find out which of the many companies they controlled might buy Union shares and tender them to the Unicorp offer. The takeover bid could not have succeeded without their participation.

  One buyer of Union shares was a numbered company, 499977 Ontario Inc. Lawyers at the hearing demanded to know who owned it. Counsel to the OEB asserted that it was an unrelated party, so no name needed to be disclosed. Jimmy Connacher said the same thing in his testimony. But after a Maclean’s story to the contrary, the OEB panel determined that there was a relationship between the numbered company and the Edper/Brascan group. The owner turned out to be Olympia & York Developments. O&Y’s Executive Vice-President, Paul Reichmann, enjoyed a reputation for religiously inspired probity. While Eyton, Cockwell and Connacher had to give their testimony to the OEB in person (Connacher hiding his face from the press like a perp, Cockwell threatened by the head of the OEB panel that he’d better show up, or else), Paul Reichmann was allowed to give testimony by affidavit. Reichmann claimed that he had bought into the deal after George Mann came to see him because it was a good investment. At Reichmann’s request, Connacher had bought $20 million worth of Union shares for O&Y’s numbered company which were then tendered to the bid. Reichmann said that he did not feel connected to the Edper group or anyone else. However, he agreed that O&Y did have two people on the boards of Edper-controlled Trilon and Trizec. (That relationship went back to the 1970’s.)186

  In sum, the OEB hearings revealed an informal yet extremely powerful network that was reshaping the Canadian economy by methods subtler than acquiring ownership of the majority of a company’s shares. I compared it to the Golem, a figure out of Yiddish folklore made of mud and dust that could be called upon to do its master’s bidding in time of need, only to return to dust when its mission was accomplished. The players in this network, while independent, also moved in concert when it suited them, and it had suited them to deliver Union to Mann, one slice at a time.

  The Unicorp takeover marked a turning point in Canadian business, a shift in social, political and economic power from the hands of the WASPs who’d been in charge in Ontario since 1793, to more recent immigrants, children of immigrants, French Canadians, Catholics, South Asians, Jews. The Jews included the Bronfmans, the Reichmanns, Israel Asper, Gerry Schwartz, George Mann. All of this was deeply resented by some.187

  So, who controlled George Mann? Most of Bay Street believed that Edper/Brascan did, especially after Mann kept Edper/Brascan people on the board of Union in spite of the fact that they had sold all their Union shares.188

  And how did it drag me into writing books? After I published a two-part magazine story on the takeover, Toronto Life magazine asked me to do an exhaustive article about the origin of the Reichmann family and Olympia and York Developments. O&Y and its subsidiaries had begun to buy publicly traded companies, taking advantage of the former Liberal government’s policies promoting the purchase by Canadians of foreign-owned assets, especially energy assets. The story of their early years in Hungary, Vienna and Tangier had not been unearthed. The project proved to be complex, fascinating, and it screamed non-fiction book.

  By the time the magazine story was published in Toronto Life, in November, 1987, the struggle to manage M&S’s debt had finally overwhelmed Jack McClelland. He and his investors had sold their shares to Avie Bennett. Yet the rest of the book industry was doing well, and growing fast. Agents were negotiating handsome advances for Canadian authors. The foreign-owned publishing companies that had previously been uninterested in Canadian writers were offering large sums for non-fiction books even to writers without a track record who had a story to tell, writers like me. Nancy and Stan Colbert sold the Canadian book rights to the Reichmann story, which I called Absolute Trust, to Random House of Canada, and the US rights to Viking in New York before the magazine story hit the stands.

  The Colberts had refused a very good offer from an independent Canadian publisher, Lester & Orpen Dennys. They didn’t believe the company would be able to withstand pressure if the Reichmann family took offence. It turned out the Colberts were wise. The Reichmanns did take offence. A few weeks after the magazine story appeared, several Reichmann family members and their company, Olympia & York Developments, sued me and my colleagues at Toronto Life for libel claiming damages amounting to $102 million. Only a few months later, Lester & Orpen Dennys was in such dire need of fresh capital that it went looking for a buyer. Avie Bennett kicked the company’s tires, but Louise Dennys thought he just wanted to buy the company so he could close down a competitor. She and Malcolm Lester sold the company
instead to Michael Ondaatje’s brother, Christopher, who bought it through his investment company, Pagurian Corporation.189 Only four months later, Pagurian merged with Edper/Brascan’s Hees International Bancorp. Ondaatje became Vice-Chairman of Hees, which had little interest in a break-even publishing company. Lester & Orpen Dennys soon withered on the vine. After it published Christopher Ondaatje’s book, Leopard in the Afternoon, in the fall of 1989, Ondaatje turned his back on the company and Hees soon put it up for sale. In 1991, Hees sold its assets—its contracts and inventory—to Key Porter.

  That same year, after too many legal motions, Toronto Life ran though its insurance money.190 My colleagues and I agreed to a settlement, which included an abject apology. Random House of Canada accepted the loss of my book with grace and kindness. Not long after that, there was a major recession and a real estate crash. Olympia & York went into reorganization and bankruptcy protection in Canada, New York, and London, leaving its massive Canary Wharf project unfinished (until a Saudi prince came to the rescue). Banks around the world were left holding large outstanding loans. I got calls from foreign journalists who wanted an explanation: how had a multi­billion dollar empire made of real buildings and publicly traded companies just gone poof?

  Over-leveraged, I said. Assets declining in value, loans made on trust instead of close perusals of the books, a grander version of the eldest Reichmann brothers’ problems in Morocco and Montreal in the late 1960’s.191

  Edper/Brascan’s real estate empire came a-cropper too: control of Trizec was later bought by Peter Munk.192

  It was all that business history still living in my head that made me wonder: could there have been an unwritten understanding between University of Toronto, Avie Bennett, and Random House that gave Random House effective control of M&S? My informant thought so. Jack Stoddart thought so, too. There was a certain logic to it: why else would Random House buy a minority interest in a Canadian publishing company better known for discomfiting politicians at election time than sending dividend cheques to investors? It certainly wasn’t a case of buying the competition to shut it down, as Louise Dennys had feared when Bennett made an offer for Lester & Orpen Dennys. M&S had continued on for 11 years.

  But then I found myself thinking about it from Avie Bennett’s side. Why had Bennett—a vociferous nationalist—decided to sell even a part of M&S to foreign-owned Random House? U of T could have signed a management agreement with Random House or another publisher to run the company. Why hadn’t Bennett just given all of it to U of T?

  I raised this question with my husband at the kitchen table one day. Clever husband instantly replied that Bennett needed Random House to buy M&S shares to put a market value on the gift. No market value, no tax credit.

  Well that explains what Avie Bennett wanted, I said, but what did U of T get?

  He had no answer. Neither did I.

  5

  When in Doubt, Ask

  You will not be surprised to learn that I’ve known Douglas Gibson, renowned editor, and former Publisher and President of McClelland & Stewart, for years. Who better to tell me whether Random House effectively controlled M&S (and Tundra, and Macfarlane, Walter & Ross) from 2000 on, as my informant had alleged? Gibson had run the place for quite a while and he’d served on the M&S board as a representative of the University of Toronto. I thought he also could explain whether or not anyone in government had blessed the initial gift/sale, as stated in the original press reports, but which had now been denied, as they say, by Moscow. It’s always awkward to interrogate a friend. But we are friendly colleagues more than social friends. No dinner parties would be spoiled.

  I think we met in 1974 when he was the newly appointed editorial director of trade books at Macmillan. By then, I was editing the Maclean’s book review section (along with the other opinion columns at the back of the magazine). Maclean-Hunter, which at that time owned Maclean’s, Chatelaine, and numerous trade publications, had bought Macmillan of Canada from its UK parent, outbidding Jack McClelland to get it in 1972.193 So we toiled for the same owner when he stuck his head around the edge of my office door one day. He introduced himself with a big, loopy grin, and began to praise his upcoming books which he said I should be sure to send out to be reviewed. I thought he was charming in a book-nerdy way. His round face hid behind a big beard. He moved in awkward lurches, first here, then there, ending up leaning against my bookcase where review copies and galleys were piled. He was tallish, blondish, and Scottish, with a kindly burr, and he was very enthusiastic. Now he is less tall, less blond, and his accent is a Canadian/Scottish palimpsest, but he is still very enthusiastic.

  He arrived in Canada after studying at St. Andrews University in his native Scotland, and Yale in the US. He worked for McMaster University, then Doubleday Canada,194 and then moved to Macmillan where he inherited a sterling backlist and a list of leading Canadian writers previously published by his Macmillan boss, John Gray, such as Robertson Davies and Morley Callaghan. But he soon found great Canadian authors on his own. Gibson enticed Mavis Gallant to Macmillan and also attracted Alice Munro. In those days, writers stuck to editors who treated their books with care, following them if they moved to a new company (so long as the new company offered advances as good as the old). Writer loyalty made leading editors major commodities to any publisher wanting to grow a better publishing list.

  In 1986, Gibson left Macmillan for M&S, after Macmillan’s cherry-picked assets (but not the company itself) had been sold by Maclean-Hunter to Ron Besse, who’d merged them with Gage. There’d been a press conference that time too. Gibson, who became Publisher at Macmillan, assured concerned writers and fiery nationalist publishers who claimed the merger was a disaster for Canadian publishing, that all would be well.195

  Gibson moved to M&S because Avie Bennett, its brand-new owner, offered him the chance to start Canada’s first personal book imprint, the eponymous Douglas Gibson Books. When Alice Munro, W.O. Mitchell, Robertson Davies, Jack Hodgkins, and Mavis Gallant followed him there, Gibson proved himself to be a very valuable person. Two years later, Gibson replaced Adrienne Clarkson (later the Governor General) as the M&S Publisher.196

  After I left Maclean’s, I didn’t see Doug much until, after his divorce from his first wife, he married the best friend of one of my friends. Then we began to run into each other at a local swimming pool. Summer after summer we exchanged hi-how-are-ya’s and bits of gossip on the deck of an outdoor community pool in Toronto’s Rosedale—just around the corner from Heather Reisman and Gerry Schwartz’s house.

  I searched for him on LinkedIn and arranged a call.

  At first he carried on with such enthusiasm about his current occupations that I couldn’t get my questions in. He is an author and storyteller now, he explained. After he retired from M&S in 2009, he wrote a book or two. He was finishing his latest, Across Canada by Story, which he described as “a coast to coast literary adventure” in which he tells tales of his encounters with the wonderful storytellers he’s worked with.

  Who’s publishing it, Doug? I asked.

  ECW, he said (a growing Canadian independent).

  Not M&S?

  He muttered something about how he’d thought it best to go with someone else. Then he segued back to the fun he was having as a literary performer and how he was trying to raise money for the Alice Munro Chair in Creativity for Western University where she had once studied.

  Enough pleasantries, I said to myself. Get to it.

  I told him I couldn’t seem to find documented evidence for a number of assertions made at the time of the gift of M&S to U of T. Neither could I discover obvious facts such as the value of the gift and the size of the tax credit receipt. Could he help me on that?

  “Well your man is Avie Bennett,” he said, in a tone that suggested real pleasure that this cup would now pass from him. “He owned 100%.”

  But why did Bennett give those shares to U o
f T? I asked. Do you know? I mean he was Chancellor at York University at the time. Why not York?

  A keen and loyal U of T alumnus, Gibson said, with a certain edge. (In fact, Bennett attended the University of Toronto but did not graduate.) Have you seen the Bennett Gates on Harbord Street, he asked? (Actually, the Bennett Gates are off Hoskin Avenue.) He wanted to preserve this national asset into the future, Gibson continued. And, he added, “I think he wanted to find a way out.”

  We began to talk about what it had been like to work at M&S in his early years there. “Avie was the chairman, there was no president,” he said. McClelland & Stewart had been physically relocated from its suburban office on Hollinger Road to the 9th floor of the former Maclean-Hunter building on University Avenue. Doug had one corner office and Avie Bennett had the other and they spent a lot of time together plotting the company’s future.

  So what were the annual revenues in those days? I asked.

  I would say several millions, he said.

  And debt? Was there a big debt?

  Not sure there was a big debt, he said. On reflection, he didn’t think so. Yet it was always a struggle to make a profit, and sometimes even to break even. From 1988 to 2000, he said, they took very seriously their title of “The Canadian Publishers.”

  What happened in 2000 that made Bennett want out? I asked.

  “My memory of 2000 in the publishing business, we were terrified of the dotcoms and the electronic problems that never really happened….”

  You mean the millennium thing where all the computers were supposed to die?

  That’s what he meant. But by the time Bennett handed off M&S that threat was long gone.

  How did Random House get into the deal? I asked.