Breeden Brands Black a Bully

20 February 2004

Richard Breeden, a former Securities and Exchange Commission chairman, now counsel to Hollinger International [H-Intl], testified Thursday to Delaware's Court of Chancery in the company's case against Lord Conrad Black.

Breeden argued that Black's planned sale of his controlling stake in newspaper publishing group Hollinger Incorporated [H-Inc] could thwart H-Intl's attempts to recover allegedly unauthorized payments to the former Canadian, now a member of the UK's unelected House of Lords.

Black is desperate to sell H-Inc (the corporate mechanism through which he owns just 30% of H-Intl but controls 73% of its voting rights) to Britain's Barclay twins for $466 million (€368.33m; £247.21m). The sale is contested by H-Intl's board and shareholders, who also claim that Black owes the company millions of dollars he received in payments unauthorised by his co-directors.

The latter fear, Breeden told the court, that if the sale goes ahead, H-Intl will never receive the monies owed as the cash could be transferred outside the US.

Breeden also portrayed Black as a bully who tried to intimidate the committee investigating these payments. A meeting "began with Mr Black glaring at us and telling us… he had every intention of suing members of the special committee," Breeden testified.

He also declared himself surprised at Black's aggressive behaviour, since the peer "never once argued, asserted or suggested that the payments were authorised".

Shortly after that meeting, in November 2003, Black agreed with H-Intl on a restructuring and asset disposal plan, now the subject of the Delaware hearing.

However, Black's lawyers countered by producing documents purporting to show that a three-person committee (of which Black was one) approved the payments to Black and that those decisions were later ratified by H-Intl's board.

His attorneys also claimed that holding company H-Inc is in imminent danger of insolvency or material default, which would release His Lordship from his promise not to sell the company.

Judge Leo Strine must rule by February 27 whether Black can sell H-Inc (and crucially its 73% voting interest in H-Intl) to the Barclays without violating the November agreement.

He must also decide two other key issues: the validity of changes made by Black to company bylaws, intended to reinforce his control over the US-based publishing group; and H-Intl's 'poison pill' plan that would enable dissenting shareholders to dilute Black's hegemony.

Data sourced from: Financial Times; additional content by WARC staff