Delaware Drama: The Case Against Black Unfolds

19 February 2004

The curtain rose Wednesday on the Delaware Chancery Court drama (farce?) of Hollinger versus Hollinger, as lawyers for Hollinger International [H-Intl] began to argue their case against Hollinger Incorporated [H-Inc] -- directed in particular at its chairman Lord Conrad Black of Crossharbour.

Black stands accused by H-Intl of misappropriating millions of dollars in payments, unauthorised by the board of the company in which he has a controlling stake and was former chairman/ceo. The control was exercised through Black's holding company H-Inc, which owns just 30% of H-Intl but 73% of its voting rights.

The outcome of the trial is crucial to Black. The court will decide whether or not he has the right to sell this stake to a third party (Britain's billionaire Barclay twins). He insists he does; the board of H-Intl is asking the court to block the sale.

Day one of the hearing revolved around allegedly unauthorized payments made to Black. He maintains the so-called 'non-compete' fees were approved by the board of H-Intl. The board says they were not.

Gordon Paris, interim chairman and chief executive of H-Intl, told the court: “There is no evidence that I’ve seen of any approvals of the payments.” Lord Black failed to disclose on a formal questionnaire in 2001 that he had received payments the previous year.

Paris testified that when Black agreed to resign as chief executive last November, he approved the hiring of investment bank Lazard to explore a possible sale of assets that would benefit all shareholders.

Black is expected to testify later in the hearing, which will continue until Friday.

Perle's H-Intl Bonuses Under Investigation
Separately, former US Assistant Defence Secretary and H-Intl board member Richard Perle is under investigation for allegedly failing to disclose bonuses from the company worth around $3 million (€2.36m; £1.59m), it was disclosed Wednesday in UK newspaper The Times.

Perle, still a White House éminence grise, received the bonuses as an award for investing H-Intl shareholder funds in a series of separate businesses -- in some of which Perle held a personal stake. Although the investments put shareholders’ money at risk, it is alleged that neither the investments nor the ensuing bonuses were disclosed.

Perle was one of five H-Intl directors to participate in the bonus plan -- but apparently the only one not to disclose the details. Failure to do so could contravene the rules of the US Securities and Exchange Commission, which requires any director of a public company to disclose annual earnings above $60,000.

H-Inc Makes Buyout Offer to Its Bondholders
As the labyrinthine affairs of Black's Hollinger empire continue to blink at the harsh light of day, his holding company H-Inc surprised the financial world by announcing a buyout offer to the bondholders owning $120m of Hollinger Inc's debt. The offer was revealed today (Thursday) in H-Intl's UK newspaper, the Daily Telegraph.

H-Inc's liquidity is threatened by the bond; it has already warned it may not be possible to meet a $7m interest payment on the bond due at the end of next month. The interest payments had previously been met by 'management fees' -- now suspended -- paid by H-Intl to its parent.

The offer will be financed by Press Holdings International, the Barclay brothers' business vehicle, and is conditional on the twins completing their takeover of H-Inc from Black.

Data sourced from multiple origins; additional content by WARC staff