by Elaine Dewar
Olive described meeting Bennett in First Plazas Inc.’s modest offices, then located above a Winners store in Toronto’s Lawrence Plaza. Bennett’s father and uncles had built some of Canada’s earliest shopping plazas, first in Toronto, and then across the country. They had talked the Woolworth’s chain into leasing properties and eventually became Canada’s biggest commercial landlords, owning most of the Famous Players theatre buildings, leasing back 150 branch offices to Canadian banks. One of Bennett’s uncles started the Fairweather chain of ladies clothing stores. Bennett had been so excited to become a part of the family empire that he left the University of Toronto without graduating to set to work. The business was worth about $200 million by the early 1960s—a vast sum of money in those days—but it was over-leveraged. And then there was a sharp economic downturn.241
Olive, unknowingly writing a prophecy, described the Bennett family’s business this way: “The Bennetts had been the Reichmanns of their day.”
Only a few years after Olive’s story was published, the Reichmanns’ Olympia & York Developments was also flattened by too much leverage.
The Bennetts’ problems were touched off thanks to $6 million borrowed from the Mercantile Bank. The Mercantile Bank was bought by the First National Bank of New York, now known as Citibank. First National called the loan. Principal Investments owned a lot of land, but had no free cash. As Olive put it:
In his frantic efforts to pay the bank off, Avie offered it the corners of Bloor and Yonge, and Yonge and St. Clair—land packages with staggering appreciation potential. But the bank wasn’t willing to let the Bennetts sell off some of their properties in order to slip out of their bind, choosing instead to force the entire Principal empire into receivership.
The assets were sold by the receivers to pay creditors, which is the way it works in capitalism: first the business grows slowly, then it expands through borrowing, then in an economic contraction lenders call their loans, which is often followed by business failure and the recycling of assets at bargain basement prices. Some of Principal’s properties were picked up by the company that became Cadillac Fairview, and by other developers who would have similar problems in a later business cycle. Bennett’s father and uncles retired, leaving Bennett to pay off $1 million of Principal’s debt that he’d backed personally. As Olive wrote:
…Bennett’s empire today—dubbed First Plazas Inc… is a ramshackle collection of 12 or so properties, some of them prized from the Principal receivers’ grip… including a part interest in McClelland & Stewart’s new head office building…
In other words, Bennett owned a piece of 481 University when he moved M&S into the building.
After he finally got back on his feet, Bennett helped others out of their own troubles, according to Olive, stabilizing the Tanenbaum family fortune when Max Tanenbaum suffered a stroke, and bankrolling Jerry Goodis’ comeback.
After making his impetuous offer, Bennett bought M&S from Jack McClelland and the other investors for about two million dollars. After McClelland left, he settled down to run the business and make it work.
“I enjoyed the stimulation of the business,” Avie told me.
But suddenly, he jumped right out of the chronology of his entry into the publishing business, to the way he’d managed his exit. He gestured toward a small photograph, framed, hanging on the wall between the windows, where he could see it easily from his chair.
Do you know who those people are? He asked.
I got up and went over to look at the photo. Yes, I know who they are, I told him. And you would too: arrayed in rows were several creators of the CanLit canon. There was Margaret Atwood, her husband Graeme Gibson (I read him before I’d heard of her), Rohinton Mistry, Alistair MacLeod, Alice Munro, Anne Michaels, Michael Ondaatje, even John Fraser, Editor of Saturday Night Magazine when Conrad Black owned it. Fraser had by then become Master of Massey College at U of T and was trying to be a novelist. Standing among them was Avie, a much younger, heavier Avie, and his assistant, Diana.
“They phoned Diana and asked [can we] take Avie and you to lunch to thank you for what you did for Canadian publishing?” he said, “just authors, to show respect… A very rewarding day.”
There was a date inscribed on a tiny brass plaque on the frame. It said January 5, 2001, six months after he gave those M&S shares to U of T and sold the rest to Random House. These writers appeared to be smiling down upon him, blessing him and all his works. Pointing this out was clearly his way of saying: will you get to the point, already? You can see that what I did passed muster with the people who count.
So why did you give M&S away? I asked.
He’d been in the business for fifteen years, he said. It was time for a change. And he was 72.
You didn’t get out because it was getting really tough to be in publishing? I asked.
I’d assumed it was brilliant business timing on his part. Knowing when to sell is as important as knowing when to buy. I’d been reading the testimony given to the Parliamentary Standing Committee on Canadian Heritage in their hearings on the state of Canadian publishing in the spring of 2000. Other publishers and their association had made it clear to the Committee that some were in dire straits due to their books being returned by Larry Stevenson’s Chapters, with no payments for as long as two quarters. Some were at the edge of bankruptcy.
It had nothing to do with Larry Stevenson, Bennett assured me. He never had any trouble with Larry Stevenson. “Nothing pushed me out,” he said.
And yet I’d also found a report of a speech Bennett had made in the fall of 1999, concerning the disaster about to befall Canadian trade book publishers—due to the rise of Amazon. Maclean’s called it a “dire warning.” The occasion was the group launch of McClelland & Stewart’s fall books. This event was held at the Art Gallery of Ontario. Bennett had just bought the Canadian Encyclopedia from Mel Hurtig in order to help out Hurtig whose company was going under. (The Encyclopedia lives on at Historica.ca and is available online. It receives very significant grants from Heritage Canada.) Bennett’s M&S had just bought Macfarlane, Walter & Ross from Jack Stoddart. By the fall of 1999, consolidation seemed to be a favourite strategy in the international book business. Random House had merged with Doubleday, and then been bought by Bertelsmann. Putnam had merged with Penguin.
When Bennett made his speech, he pointed out that returns to Canadian publishers from booksellers had increased by 12%, which was bad, but that the biggest problem was the territory-busting behaviour of Amazon. Bennett said he’d just done a test to see if the American edition of a Canadian originated book (Alice Munro’s The Love of a Good Woman) would be delivered to a Canadian address if ordered from Amazon US online. It had been. He concluded that “we and other Canadian publishers are losing millions of dollars in sales that way…”242
I reminded Bennett of that speech.
Giving away M&S had nothing to do with any of that, Bennett insisted, nothing and no one had pushed him from the business. M&S was profitable on and off, he said. He just felt he needed “an exit strategy,” just like anyone else who owned a Canadian publishing company.
Why?
“The obligation to keep Canadian ownership and there were no Canadian buyers,” he said.
Did you try to find some? I asked. I remembered what my informant had asserted, and what Jack Stoddart had confirmed when I called him to check. At the time of the gift and sale in 2000, Bennett had claimed that he’d offered M&S to Stoddart and to Anna Porter, but both had turned him down. Stoddart called this “an utter fabrication.”
“No, I didn’t try,” Bennett said now, to my surprise, “but nobody knocked on the door. I thought I needed an exit strategy at some point.”
Yet he didn’t actually exit from M&S after he gave it to U of T. He stayed on its board as Chairman for another 11 years until U of T handed the shares over to Random House of Canada. He’d also told me that
he was bored with the development business when he bought M&S, but he hadn’t gotten out of the development business either. First Plazas Inc. was still involved in deals.
Did you go to Random House first? I asked.
“I went to U of T first,” he said.
Another surprise. That meant my clever husband had got it wrong. He is rarely wrong. Who did you see? I asked.
At first, he said he didn’t remember. Then he remembered. He said: “I went to Mr. Prichard.”
Robert Prichard, the President? How did you know him?
I was on the Board of the U of T, he said. It seemed logical.
He’d been on the Governing Council and its Business Board for two years when Prichard, Dean of Law, became President of the University of Toronto.243 The Governing Council that appointed Prichard to the Presidency included Gerry Schwartz, who, like Bennett was appointed to the Council by Premier David Peterson. After Premier Peterson lost the election of 1990 to the NDP, Peterson served as a director on various corporate boards, including as chairman of the board of Chapters.244 Peterson was still on the Chapters board when Gerry Schwartz and Heather Reisman, through Trilogy, made their takeover move.
What happened?
“It was receptive,” Bennett said. “I felt it was in good hands. I thought it was a way out. And it was.”
What about the valuation of the gift for the tax credit? I asked. Did that come from the sale of shares to Random House?
“U of T put a value on the company. That was the value we used for the government valuation of the tax credit,” he said.
I sat back in my chair. I explained that I understood that when the shares of a private company are given as a gift to a registered charity, it’s very difficult to get their value properly assessed for the purpose of issuing a tax credit receipt, and that I had heard some universities were reluctant to take such gifts because the last thing they want is trouble with the Canada Revenue Agency. In fact, one large university got more than one independent appraisal by professionals, which entailed a lot of time and expense and involved running through the company and its books with a fine-tooth comb…
Oh, we did none of that, he said, cutting me off with a hand wave.
And the University issued a tax receipt?
It did, he said. “There was no hocus pocus. The Random House deal was at that point.”
He went to Random House because he thought that the U of T Press was not a well-run company and he wanted some kind of arrangement that would ensure M&S would be well managed. “Didn’t need to have an appraisal,” he said, “needed a better back room to work with U of T…” And, he said again, it had nothing to do with what was going on in the publishing realm, it was “coincidental” that it happened in that period, there was no pressure on him at all, not from U of T, Random House, or anybody else. “Random House liked the idea. And I knew Neale, [then Chairman of Random House of Canada] a good guy.”
So you’re sure that U of T valued the company itself, they didn’t use the sale of the shares to Random House to value the gift? They didn’t send auditors to poke into the company?
I kept asking this question because I was so surprised at his answer. But he was adamant.
“None of that valuation happened,” he said firmly.
Who did you clear it with when you went to Ottawa? I asked, thinking at least I’ll find out now whether he went to see Sheila Copps, or someone else, or no one at all. Because I can’t find a record of any of that, I added.
“I don’t remember going to Ottawa. Did talk.”
Do you remember who to? Was it with a man named Wernick?
“The name Wernick rings a bell,” he said. But then the said: “I’m not sure.”
Did you try offering it to any other foreign-owned publishers? I asked.
“At that point, Random House was the top Canadian [foreign-owned] publisher. I didn’t have to go anywhere else. They said yes.”
This is not the way the sale of a business is normally handled. Usually the seller wants to maximize value in the eyes of prospective buyers, and the best way to do that is to find more than one interested buyer. On the other hand, how many business owners give the control block away as a gift to a charity, and then try to sell the minority to a business that will run it?
Okay, I said. So you did the deal and then the years go by and in 2011, U of T decides to transfer its shares to Random House. What can you tell me about that?
“The final deal we weren’t aware of till it was finished,” he said. “I was as surprised as you were.”
That made no sense either. He’d been on the board at the time, in fact he’d been the Chairman of that board, voting the University’s interest.
Remind me who else was on the board, I said.
He began to speak with pride about some of the people who’d served with him. Its members had included John Evans, a former president of U of T, and Rob Prichard.
Why those two? I asked.
“A certain glamour to the business that appealed to them,” he said with just the tiniest hint of a glint in his eye. And then there was Arlene Perly Rae.
Why her? I asked.
“She was a bright woman and the right sex,” he said. Trina McQueen, who replaced Perly Rae when her husband Bob Rae ran for the leadership of the federal Liberal Party in 2006, was “the brightest board member.” McQueen was once a leading figure at both CBC and CTV, but by then was a director on the CBC’s board. Later, she became an adjunct professor at the Schulich School of Business at York University. He knew her from the board of Historica. And he rhymed off the others on the board, including Doug Gibson.
So why did you stay on as Chairman of the board of a company you didn’t own any shares of for so many years? I asked.
“It had a certain prestige,” he said. “It gave me an opportunity to keep an eye on the undertakings, to make sure it continued,” he said. No, he wasn’t talking about making sure that the University would sell its shares only to a Canadian. That wasn’t part of the agreement because it was the law: “It was taken for granted. So not in the agreement,” he said.
There is a written agreement? I asked.
“Yes, there is a written agreement,” he said.
Can I see it?
“No, you can’t see the agreement,” he said.
About the tax credit you got for giving U of T 75% of the shares of the company, I said. Did that matter to you?
It mattered, but it was not a big deal, he said.
How long was U of T supposed to hold onto its shares? I asked. From the press conference given at the time, it sounded as if you were giving it to the university to hold in perpetuity. But Doug Gibson told Maclean’s three years.
He looked at me for a moment and said nothing, as if he was reconsidering his estimate of my general level of intelligence.
Forever is a long time, he finally said. On the other hand, “they didn’t go into it with the idea you’ll sell it,” he said. “It was to be there a long time. They carried out all obligations the way they were supposed to. I have no criticisms of the way Random House or U of T handled the deal.”
What if I told you that when the University got rid of its shares, there is no record of that transaction in U of T’s annual reports, and its spokesperson says that is because it was handed over to Random House at the cost of zero. And her explanation is that there was a huge debt.
I can’t tell you, he said.
Was there a three-year hold agreement as Doug Gibson said at the time?
Yes.
Can you show me?
Get it from U of T, he said.
What would you say if I told you that Doug Gibson believes that actual control of M&S passed to Random House long before the University’s shares did, like sometime in 2004–2005?
I thought his answer would be definiti
ve. He had been Chairman of the board for the whole period, from the time he made the donation to the final transfer of the shares. No one was better placed to confirm or deny what Gibson had said about who had control.
“I think Doug is correct,” he said.
A bit later, I asked him again, to be sure. Was it fair to say that M&S was not Canadian controlled from 2004 and therefore not eligible to apply for certain grants and tax credits?
“I can’t comment,” he said, [whether or] not [it was] Canadian controlled from 2004 on. I don’t know…”
I was confused. Had he just changed his tune? I asked again: I need to know, I said, because if it was not Canadian controlled from 2004, it shouldn’t have been able to receive certain grants and tax credits.
“I would have guessed 2005,” he said.
And a little later, as he considered these questions, he said: “This is a book no one will read. I say [that] as a publisher.”
I’m not doing a book, Avie, I replied.
But from that point forward, though I meant to publish what I learned in my blog, I began to think perhaps I should do a book or at least a magazine story. Because: I had two people who were in a position to know agreeing that actual control (meaning the minority shareholder was able to make vital decisions even though the majority of the voting shares were owned by U of T) passed from the hands of a Canadian institution to the foreign-owned Random House in 2004–2005. Nevertheless, M&S had continued to apply for grants requiring U of T to have that control for another six years—as if nothing had changed. (I didn’t know then that the government had no problem with the transfer of de facto control of M&S to Random House: in fact, it had blessed it from the start.)
