Investor Activism Brings Down Black

Insight on the News, Dec 8, 2003

Byline: Jamie Dettmer, INSIGHT

Investor Activism Brings Down Black

Several months ago this column raised the possibility that the Canadian-born publisher Conrad Black might, as the final consequence of a fierce dispute with investors, lose control of his influential media group Hollinger International Inc., publisher of the Chicago Sun-Times and the venerable Daily Telegraph in London. Few others predicted such an outcome, but in mid-November Black quit as Hollinger's chief executive officer, although he remains as chairman.

Hollinger is up for sale after an investigation found Black misled shareholders about $32 million he and company partners received in compensation. The payments included $7.2 million to Black himself. Lazard LLC has been charged with finding a buyer, the company said.

Black's departure ends a 37-year career in which he transformed Hollinger from a two-man partnership with a pair of weeklies into a newspaper empire spanning the globe. It's also another indication of the increasing post-Enron power of investor activism. The dispute started when Cardinal Capital Management LLC, which holds about 1.5 million shares of Hollinger International, sued the company to obtain details of Black's compensation. Black dismissed the move as corporate-governance terrorism. But Cardinal Capital Management was unrelenting and attracted the backing of other minority shareholders. Hollinger told the U.S. Securities and Exchange Commission that the payments to Black had been approved by independent directors when they hadn't. An investigation also found that Hollinger International paid $16.6 million to parent Hollinger Inc., a Toronto-based company that Black controls, without ever disclosing it publicly.

Hollinger International, valued at about $1.56 billion, may find it hard to command a high price in a sale - many of its newspapers face strong competition from rivals. Sell-offs of individual parts of the group will face the same problem. Newspaper analysts say, for example, that demand for the Chicago Sun-Times will be low. That won't be the case for the Daily Telegraph and Sunday Telegraph - there likely will be fierce competition over those titles. The Washington Post is believed to be interested. Likewise Gannett. There are likely to be several bidders in the United Kingdom as well.

There is irony in Black's misfortune. Hollinger's success partly was built on Black's boardroom coup in tugging the Telegraph group of papers away from their long-term owners, the aristocratic Hartwell family, who were devastated by the loss of the newspapers they loved. It was said that when Lord Hartwell left the Telegraph building in London's Fleet Street for the last time he cut a forlorn figure, especially as he had lost the chauffeur-driven company car. Having never had to do it before, he was at a loss at how to hail a cab. A sympathetic security guard stepped forward and secured a taxi.

Home Prices Still Hitting New Heights

Despite this column's long-standing fears about prices of residential real estate and the possibility of their collapse in the wake of any hiking of interest rates by the Federal Reserve, home prices continue to soar.

In one-third of the nation's cities and towns housing prices jumped at least 10 percent in the third quarter, making it one of the strongest quarters for residential prices on record. The 10 percent price rise from last year's third quarter was recorded in 41 of the 124 areas tracked by the National Association of Realtors.

And this despite a rise in mortgage rates. At the end of the second week in November the average rate on 30-year fixed-rate mortgage loans rose to 6.03 percent. The 15-year fixed-rate mortgage inched higher to 5.39 percent from 5.31 percent the previous week. Also up was the rate on one-year adjustable-rate mortgages (ARM), loosely indexed to the 10-year Treasury note. The one-year ARM came in at 3.76 percent, up from 3.73 percent the previous week.

But for the bears signs are that prices may start slowing soon. Demand for home loans fell to a 15-month low in the second week of November as higher interest rates started to quell demand, especially for refinancing, according to the Mortgage Bankers Association.

Terrorist Attacks Spooking Stock Markets

The potential impact of bad news in the war on terrorism was plain to

see in mid-November when the stock markets in the United States and overseas backed off their previous highs in the wake of terrorist attacks in the Middle East.

There was no economic news around to explain the sell-offs and the fall in prices. What clearly spooked investors were several terrorist incidents in a row, including the crashing of two Black Hawk helicopters in the Iraqi city of Mosul resulting in the deaths of 17 soldiers, and a car-bombing outside two synagogues in Istanbul.

European shares were especially hard hit. With fears mounting of more bomb attacks, travel-sector stocks dived.

The violence reignited fears of geopolitical instability, which had receded in the previous months, sending investors rushing out of equities and into safe-haven investments such as bonds and gold. "Geopolitical risk has been weighing on the market," Michaela Marcussen, associate director at SG Asset Management, told Bloomberg's. "It's been there since September 11. It keeps going and coming back. ... Unfortunately it's one of the things we just have to learn to live with."