Controversy grows as Black turns on critics

CONRAD BLACK this weekend hit back at critics of the Telegraph's Cdollars 129m (pounds 70m) purchase of shares in a loss-making Canadian publishing group as it emerged that Hollinger, Mr Black's Canadian holding company, needs to find Cdollars 189m by 14 April to finance its side of the deal.

The transaction has caused an outcry in the City, with critics claiming that it might be against the interests of minority shareholders in the Telegraph to buy such an interest.

The Telegraph is paying Cdollars 18.10 a share for half the 22.5 per cent stake in Southam Press, which Hollinger purchased from TorStar, publisher of the Toronto Star, in January. The price compares with Cdollars 14 a share which is to be paid for new equity by Power Corporation, led by French Canadian financier Paul Desmarais.

Mr Black described the deal as 'a splendid opportunity for the Telegraph'. Southam was 'a rising stock', 'a turnround situation not unlike the Telegraph and Fairfax when we bought into them', he said.

Mr Black insisted that because of his conflict of interest as head of both the Telegraph group and Hollinger, he had played 'virtually no part' in the transaction.

Hollinger would have been happy to have kept the shares itself but the Telegraph management had expressed an interest and it was the sensible thing to do. 'What was I supposed to do? Tell them to get lost?' Mr Black said.

He added that just because Power Corporation was getting a better price didn't mean this was a bad deal for the Telegraph. The Telegraph would not be able to buy such a large stake for anything less, he said.

However, with Southam shares trading at less than Cdollars 16.50 in Toronto on Friday, a leading Canadian broker said it could purchase a quite substantial stake in Southam at less than Cdollars 18 a share if a client wanted to.

Hollinger's purchase of the original stake - also at dollars 18.10 a share - was financed by Cdollars 70m drawn from Hollinger's own resources and dollars 189m lent by TorStar in short-term finance repayable on 14 April.

Mr Black has been quoted as saying the finance was taken from TorStar for merely tactical reasons. However, David Jolley, joint chief executive of TorStar, said: 'My understanding was that Hollinger itself could not get immediate financing and that it was required to split the deal between itself and the Telegraph. We lent them the money because they couldn't borrow it. That's the way we saw it.'

Jack Boultbee, Hollinger's finance director, said Hollinger had a contingency plan to provide finance to repay TorStar if the Telegraph does not approve the deal. He said the decision to sell some of the holding to the Telegraph was taken for tax reasons.

'The Telegraph has the ability to write off the investment against tax, which we are not allowed to in Canada,' said Mr Boultbee.

Independent directors of the Telegraph, led by former Emap chairman Sir Frank Rodgers, announced on Friday that they would be recommending the deal to Telegraph shareholders. An extraordinary shareholders' meeting will be held on 13 April, just in time for the money to repay TorStar to arrive at Hollinger.

The proposals need a simple majority of the shareholders voting. Hollinger, which has 68 per cent of the group, is not allowed to vote.

Securities analysts in Canada have criticised the deal, saying that Hollinger and the Telegraph are paying too much for the shares. Earlier this month, Southam shares fell to Cdollars 13.50, though they recovered to more than Cdollars 16 this week.

Tim Casey, a media analyst at Canadian broker Burns Fry, said the share price has peaked in the short term. 'It is just euphoria because Power put in the new money. There is a long, hard struggle to overcome the problems Southam's newspaper division is facing.'

Southam's newspaper interests have been hit by union disruption in Vancouver and heavy competition from rivals, including the Thomson Corporation.

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