by Elaine Dewar
“It was 2007, 2008 when Rob went up and said we know there’s this policy…,” said Honderich. That was seven years after Prichard and Bennett went to Ottawa to make the case about the gift/sale of M&S. And the timing was right: there had been a change in government in Ottawa. Harper’s Conservatives had a minority and little obvious interest in cultural policy.
As Honderich explained it, for the Harlequin Letter, Prichard had developed a rationale quite unlike the one used to get a Letter from the Minister declaring the new M&S to be Canadian. To advance the M&S handover, Bennett had claimed in public that the U of T would have control, while Prichard secretly promised that the U of T would never claim to be a crown agent and sell its M&S shares to a foreigner. Instead of showing how the Harlequin sale to a foreigner could be made to fit Policy, Prichard argued that the Policy had never been meant to apply to Harlequin.
Harlequin had been purchased by Torstar during Beland Honderich’s day as a hedge against downturns in the newspaper business. Prichard had argued it was not really the sort of Canadian book publisher that the Baie Comeau Policy (and the Investment Canada Act) were meant to protect. Only three percent of Harlequin’s business is Canadian, Honderich explained to me. While there were a number of Harlequin jobs in Canada at its head office in Toronto, mainly Harlequin had become an international operation based in the US, using American authors, using American distribution out of Kentucky, and selling its stories in translation from offices all around the world. Harlequin was certainly publishing stories, but they weren’t Canadian stories.
“There’s a subsidiary office in New York as well as in France, Spain,” said Honderich. There were offices as well in Germany, Poland, India, Japan, etc. “I thought Baie Comeau was developed to protect companies here from being taken over by US publishers, like Bertelsmann and Hachette. I saw Baie Comeau as [something] to protect those [companies] promoting Canadian talent. I’m not sure that policy is designed to protect a worldwide publishing [company].”
That, in a nutshell, had been Prichard’s argument. Honderich repeated it to me several times. He agreed with it.
But Harlequin wasn’t losing money, I said, and it wasn’t offered to a Canadian either, right? Those are the requirements for Canadian publishers seeking an exemption from the Investment Canada Act under the Policy. Had someone made you an offer? Were you looking for one?
Honderich placed his leg over his knee. “We were not looking for a sale, Rob Prichard made the decision that should an offer come up, we should be in a position to accept it.”
It sounded as if Prichard had taken lessons on how to manage bureaucrats—first come up with a good story—from Avie Bennett. Or was it the other way around? Bennett had been on the Governing Council of the U of T, and then on its Business Board, when Prichard was law school Dean, and then President. Bennett had helped make him President. They’d known each other for a long time, long before the M&S gift/sale idea was hatched. Maybe it was shared habits of mind that commended each to the other in the first place.
“When we did sell,” said Honderich, “we still had to undergo the same test, the high bar of the Baie Comeau was in place.”
That of course was a matter of debate. Those lawyers at Stikeman Elliott, Doug Gibson, and my first informant certainly had not seen it that way.
So what happened?
“We ended up with a letter from Industry Canada saying in effect that the polices did not apply if… a third-party offer came forward…But we couldn’t go out and shop it. Not allowed.”
I was pretty sure he meant Heritage Canada, specifically the Minister of Canadian Heritage, not Industry Canada, but I didn’t challenge him. When did you get that letter? I asked.
“I think in 2009 we got the letter. I was on the board as a board member.”
The letter, as he remembered it, had set out the government’s terms. The government said it would accept the sale of Harlequin Books to a foreign entity if Torstar could show that the offer was independently made (in other words, that Torstar had not sought it out) and that this was not contrived. When HarperCollins came calling, it was because of Harlequin’s international network. Under the direction of Donna Hayes, the Harlequin CEO, the company had moved into a whole new series of genres, including Christian evangelical love stories, that found a large audience, and it had set up translation staff in offices around the world to get the books out in as many languages as possible. “That’s why we got the big bucks,” Honderich said, with a huge grin.
Did they arrive with the big offer in hand?
They came in November, 2013, and the deal was negotiated, he said. “It was a New York guy, can’t remember his name, an investment banker who came first.”
So the offer changed?
“Yes, the offer changed,” he said, and laughed again. “That’s what we’re here for. We felt we came out with an excellent price.”
How did you work out the value? I asked, thinking of the rules of thumb for valuing a book publisher as described by Ron Scott in his opinion letter. Was it based on net sales? I asked.
“It was more how did HarperCollins value it,” he said. “Back revenue or forward revenue? In this case, no question, Harlequin was under threat, the revenues were decreasing… In terms of the valuation, they put a huge strategic value on its international assets, the humans in offices with skill sets. Excellent people, operations in Japan, Australia, top level, incredible partners of huge value to them. The backlist has a valuation but [it] was more how they valued that. We had a sense of what we could get… but they surprised us with how high they were willing to go.”
So Robert Prichard did this, I said.
“I’m here to say I fully support what Rob did—he showed foresight that served the company very well.”
It had occurred to me that Honderich and Prichard are about the same age and may have known each other at the U of T law school, so I asked when they’d first met.
“Rob and I go back to childhood,” he said. “Same neighbourhood.”
Of course. Everybody in this story was cross-linked to everybody else.
Are you still a cultural nationalist? I asked. Or have you changed your mind? What do you think of the Policy and the Act?
Well, he said, outside of the way it shrinks value for companies because it imposes constraints on sales, he thought the CRTC with its regulations on airplay for Canadian songs, etc., had been important. “We had to have mandated slots. Now the view is, let Canadians go and compete in the world and we do well. Drake, The Weeknd, Bieber, you have a sense we don’t need the protection anymore, let Canadians thrive in competition.”
In 2009, did you believe that? I asked.
“I’ve evolved in my thinking. Harlequin was worldwide. The brand was strong, even among Christian evangelical lines,” he said with a grin. “But along comes Amazon. They sold Harlequin books, but who had the customer name and the credit card? Amazon. That’s the world we’re now dealing with. The competitive environment changed dramatically. The niche [was] no longer protected. So it came down to single title successes like every other publisher. [You] try your best but you’re up against giants. It lost its niche, became another publisher, a smaller one, a metaphor for how other things have gone today. We saw the dramatic declines in revenue—30% in one year… and [we were] mainly in the US market. Prichard took the initiative—[an] extensive period of meeting with officials. It was the Stephen Harper government, not prone to do favours for the Toronto Star. The officials saw it as a worldwide company located in Canada. Is that what the Act [was] meant to protect?”
It was Prichard who saw the bad times coming, he reiterated, Prichard who was prescient enough to act. The heyday of Harlequin had been in the late 90s. Owning Harlequin had buoyed the Toronto Star then: the difference in value between Canadian and US dollars had translated into $100 million a year in revenue for Torstar from Harlequin’s US sales.
Donna Hayes had further advanced Harlequin by extending its genres and expanding heavily into world markets.(She left the company before the sale to HarperCollins was finalized.)
When Honderich mentioned her name again, I remembered that Donna Hayes is married to Brad Martin, CEO of Penguin Random House.363
When the offer came from HarperCollins, thanks to Prichard’s foresight (and his experience with M&S, I muttered over my notes) it was not necessary for Torstar to go to Ottawa and try to make a spurious argument about how Harlequin was in awful trouble (it wasn’t) and no Canadian had stepped forward to buy it (it wasn’t on the block). The Minister’s letter was already in Torstar’s pocket, a letter, according to Honderich, that bound any future government, just as Sheila Copps’ letter had bound future governments to her definition of M&S as Canadian in spite of Random House acquiring de facto control along with its 25%.
“We had a signed document” said Honderich. “We had to show it was an independent third party offer and that was easy to show. We had evidence of that. There were meetings in Ottawa.”
With?
He said he thought it was Investment Canada.
Wouldn’t it have been Heritage Canada? I asked. Was the man’s name Harold Boies?
Boies administers the Investment Canada Act issues within Canadian Heritage. I knew that because we’d emailed back and forth. He’d told me nothing at all about the M&S transaction, pleading that the Investment Canada Act precludes him from offering any information.
“That does ring a bell,” said Honderich. “I know there were meetings in Ottawa with the Heritage people. Most of the discussions were about guarantees of jobs in Don Mills (where Harlequin has its headquarters) and the head of the company staying here.” These promises, made by HarperCollins, “did have a time horizon.”
And no one asked if you were going broke or if you’d offered Harlequin first to Canadians?
“This is what Prichard did,” Honderich replied. By which he meant, Prichard’s it’s-not-really-Canadian argument had somehow successfully neutered the requirements of the Act. And so: Torstar got $455 million from HarperCollins, which it used to pay down debt as it invested heavily in a tablet version of the Toronto Star. It was still reporting losses, big losses, but how much worse would things have been if Torstar hadn’t been able to sell Harlequin?
What do you think about the Policy now John? I asked, almost dreading what he would say. You say you’re a nationalist, but what about that?
“I’m the Chairman of Torstar. We feel we made a strategic decision to exit at a time when threatened. I am a nationalist. I never felt this violated the spirit or the intent of Baie Comeau.”
But it violated the intent of the law, not just a policy, I found myself thinking. Okay, I said, look what happened with M&S. Now it’s just a brand among brands owned by Bertelsmann.
“M&S’ whole business was doing Canadian books, by Canadian authors. Harlequin did none of that. All the big writers and titles were American. The essence of the company was American. The distribution was out of Kentucky.”
Should the Policy remain?
“When I talk [about] economic conditions, conditions have changed… The economic realities of the world, open [borders] the digital revolution plus Amazon, make it much more challenging for small Canadian publishers to survive. If—what we experienced is it’s much more difficult to survive today, the Policy may no longer fit the times.”
I reminded him of what Prime Minister Justin Trudeau told the New York Times Magazine just after the election. He’d said: “There is no core identity, no mainstream in Canada. There are shared values—openness, respect, compassion, willingness to work hard, to be there for each other, to search for equality and justice. Those qualities are what make us the first post-national state.”364 I pointed out that Mélanie Joly, the Minister of Canadian Heritage (who once referred to herself as the Minister of Symbols) had said that all of cultural policies were up for review, everything is on the table. So, what about newspapers? I asked. Should Canadian newspapers be on the table?
“In terms of right now, there’s a great debate presented by Godfrey to get rid of the restrictions on foreign ownership of Canadian newspapers. We are all alone in that area that the rules should be maintained. In book publishing, you cannot overestimate the impact of Amazon. You cannot overestimate the impact. They have all the information on you. They make great use of it.”
And the Internet’s impact on newspapers had also been dreadful. “We once had 60 pages of classified ads which paid for a lot of reporting,” he said. “Now it’s Kijiji for free.” He still saw the value of keeping Canadian newspapers in Canadian hands “but I understand the economic conditions. It’s a Postmedia world. Yet the recording industry and the film industry are not doing too bad.”365
Well, thanks to the handover of M&S and the merger permitted between Penguin and Random House, a third of Canadian book publishing is mostly in the hands of Penguin Random House, I said. And at Penguin Random House two people have the last word on what’s going to be published. How does that serve us?
“Yet the viability of the publishers is very much in question,” he said. “The economics don’t lie in that respect.”
In effect, you’re saying—keep the rules intact for the newspaper business, but not for the other cultural industries, I said.
He said he took the point. No, he did not know whether the Star would give testimony at hearings into the demise of local news. They had just begun, led by the new chairwoman of the Standing Committee on Canadian Heritage, Hedy Fry, in response to the Postmedia mergers and the Star’s closure of smaller papers. He said the Star had not yet been invited. (He did testify later in the fall.) But he said he was delighted that the conversation had at least begun, because the questions, the economic realities, were very real. The important issue, he said, is: “What will it mean for our democracy?”
When I got home, I emailed Robert Prichard at Torys. I asked if I could interview him on how he’d framed the Harlequin argument for the bureaucrats in Ottawa. He’d been involved in three successful maneuvers that had resulted in permissions from the Minister of Canadian Heritage. He’d helped argue successfully for permitting the merger of Penguin Canada with Random House of Canada, which created a publishing oligopsony. He’d argued successfully that the U of T would have control over M&S in spite of what the agreements said. He’d argued successfully that the sale of Harlequin to a foreigner should be allowed because Harlequin—started in Canada, head office in Canada, controlled by a Canadian entity—should be considered as more foreign than Canadian. This gave new meaning to the word flexible.
I told him that John Honderich had said very nice things about his insight and foresight in getting officials to see things his way. I said it was clear he is the best lawyer in Canada. Would he give me an interview to explain his argument and discuss the letter permitting the Harlequin sale?
He would not. It was his opinion that only the current officers of Torstar should speak on Torstar business, specifically John Honderich, the Chairman, and David Holland, its CEO. Since they had all operated together as a team, they were well placed to explain. On the subject of him being the best lawyer in Canada, I had been “misinformed.” Since he had only been practising law for five years, he couldn’t even claim competence, let alone accomplishment.
I took Prichard’s advice once more and asked for an interview with David Holland, then still the CEO of Torstar. Holland gave me 15 minutes on the phone. I confirmed with him the basic facts gleaned from Honderich, though Holland was reluctant even to do that. I asked for the name of the American investment banker who had come to see him. He said the whole business of getting permission to sell Harlequin had been a confidential matter between Torstar and the federal government. Yes, there had been a net benefit test. No, he could not recall if the requirement of the government was that Torstar could not shop Harl
equin, but could sell it if an independent third party came to them. This was all done in confidence, he reiterated.
But the Investment Canada Act does not prevent companies from saying whatever they want to about these matters, I said. Would it be possible to show me the letter the government issued?
He stuck to his position. And he refused to show me the letter.
I asked if his views on the policy requiring Canadians to own Canadian newspapers had changed.
“I learned a long time ago to never say never, but… As of today we think they should remain in Canadian hands,” he said.
As of today? It’s all confidential, even when it doesn’t have to be? If even Torstar was no longer sure of the virtue of the Investment Canada Act and its protection of Canadian ownership of Canadian newspapers, the whole cultural nationalism game was well and truly over.
Pierced in secret, left to bleed, smothered by silence.
18
Endings and Beginnings
Ellen Seligman, McClelland & Stewart’s legendary fiction editor/publisher, died in the spring of 2016. When her obituary appeared in the newspaper, it was a sad surprise. Unlike the way most information moves through the CanLit community—like the unmentionable through a Canada goose—almost no one, not even a writer whose novel she was editing, realized that she was ill, never mind that it was terminal.366 She had worked with all the usual suspects, Margaret Atwood, Jane Urquhart, Michael Ondaatje, Anne Michaels, Rohinton Mistry, Leonard Cohen, stretching the normal practice of editing far beyond offering structural suggestions or rearranging sentence order. One writer, Patrick Lane, said she had “inhabited” his manuscript.
