Hollinger Sale to Barclay Twins Barred by Court

27 February 2004

Today, Friday February 27, is not a good day for newspaper publisher and ex-Canadian citizen Lord Conrad Black of Crossharbour, these days a member of England's patrician House of Lords.

Late Thursday evening Judge Leo Strine, Vice Chancellor of the Delaware Court of Chancery, issued his ruling on the peer's urgent desire to sell his closely held company, Hollinger Incorporated [H-Inc], to Britain's clamlike Barclay twins.

Through this company, Black controls a 73% voting stake in publicly quoted publishing group Hollinger International [H-Intl], despite owning just 30% of its equity -- thanks to an arcane super-voting share structure.

But in the wake of a lengthy hearing earlier this month, Judge Strine last night issued a written judgement. Condensed to a single word, it read: 'No'.

The ruling, however, ran to 133-pages and Judge Strine seemingly relished the space at his disposal. He opined that His Lordship "repeatedly behaved in a manner inconsistent with the duty of loyalty he owed [to H-Intl]. Black breached his fiduciary and his contractual duties persistently and seriously," the judge continued.

He also criticized Black for negotiating secretly with the brothers Barclay after pledging his support to the H-Intl board's strategic-review process.

The judge accepted that overruling the right of a controlling shareholder to sell his stake is a serious matter; but the only way to protect minority H-Intl shareholders was to block the Barclay deal.

Judge Strine was clearly unimpressed by the newspaper proprietor, writing that he found Black " evasive and unreliable. His explanations of key events and of his own motivations do not have the ring of truth."

By contrast, the judge found "credible" the testimony of H-Intl company directors and Richard C Breeden, an adviser to a special board committee that is investigating Black's financial dealings within the company.

As to the disputed payments, totalling $32.2 million, allegedly misappropriated by Black and other H-Inc directors, Judge Strine held: "At worst, the [H-Intl] board was purposely duped and there was fraud on the board; at best, they were entirely uninformed.'' These payments have prompted a lawsuit by the US Securities and Exchange Commission.

A statement issued last night by H-Inc implies that neither the company nor Lord Black plan to appeal. It reads: "[H-Inc and its chairman] recognize that the decision points the way to a realization of full value for shareholders of both Hollinger Inc. and Hollinger International Inc. through the active pursuit of the strategic process being conducted for International by Lazard LLC."

Data sourced from: The Wall Street Journal Online and Bloomberg; additional content by WARC staff