Hollinger Inc Faces Material Default or Insolvency If Not Sold to Barclay Brothers

Strategic Insights -

Lawyers for Hollinger International, the US-listed publishing group, have suggested that the company could face material default or insolvency if it is not sold to the Barclay brothers, a British billionaire twin duo. The $466.5m deal, orchestrated by Conrad Black, has been opposed by Hollinger International, which holds a 30% stake and a 73% voting interest in the Canadian company. The suggestion came during a court hearing in Delaware's Court of Chancery, where the two companies debated issues including a poison pill meant to dilute Hollinger Inc's stake.

Key Takeaways:

  • The Barclay brothers have agreed to underwrite offers to redeem a high-interest $120m bond, which Hollinger could default on if it does not meet a near-$7m interest payment due next month.
  • Lawyers for Hollinger International produced letters showing that Lord Black was in contact with Sir David, one of the Barclay brothers, a few days before he signed the restructuring agreement in April 1999.
  • The restructuring agreement, signed in April 1999, allowed Lord Black to sell Hollinger Inc if it would protect the company from a severe liquidity crisis. However, it also stipulated that Lord Black would refrain from taking any action at Hollinger Inc level that would jeopardize Hollinger International's ability to sell its assets.
  • Lord Black sold 145,000 shares in Hollinger International last week, with a face value of more than $2.5m, according to a US Securities and Exchange Commission filing.
  • The poison pill, meant to dilute Hollinger Inc's stake, was established by Lord Black to frustrate the plan of Hollinger International to sell its assets, which include the Telegraph newspapers.
  • Hollinger International's opposition to the $466.5m deal has been centered on Barclay brothers' attempts to acquire control of the Canadian company through the black-bag bid, which the company claims is a proxy for a hostile takeover.

Statistics:

  • $466.5m: the amount of the deal orchestrated by Conrad Black.
  • $120m: the face value of the high-interest bond that the Barclay brothers have agreed to underwrite.
  • $7m: the interest payment due next month that Hollinger could default on.
  • 30%: the stake held by Hollinger International in Hollinger Inc.
  • 73%: the voting interest held by Hollinger International in Hollinger Inc.
  • 145,000: the number of shares sold by Lord Black in Hollinger International.
  • $2.5m: the face value of the shares sold by Lord Black.
  • April 1999: the month in which the restructuring agreement was signed.

Sources:

  • "Hollinger deal: US court weighs up options", Financial Times, February 2004.
  • "Hollinger International opposes Barclay bid", Financial Times, February 2004.
  • "Barclay brothers agree to underwrite bond", Financial Times, February 2004.