Early in 1968, the leadership of Power Corporation passed from the sons of the founding shareholders to financier Paul Desmarais. His strategy was to increase Power Corporation’s cash flow; to consolidate its holdings into control positions in a limited number of large, diversified, long-term holdings; and to concentrate on improving their performance. By 1971, two thirds of the Corporation’s assets were in operating subsidiaries controlled by Power, as opposed to less than 40 per cent in 1968.
Power Corporation was only part way through its successful reinvention when recession, stagflation, and two oil shocks buffeted the North American economy. Though many of the Corporation’s holdings were beset by difficulties during the 1970s, Power Corporation was able to maintain its profitability and growth thanks to the experience of its directors, the talent of its group company management and the dedication of their employees to serving their customers, as well as the strategic leadership of the controlling shareholder.
Faced with challenging circumstances, Peter Thomson and his directors agreed to make a share-exchange offer with Trans-Canada Corporation Fund (TCCF) in early 1968. TCCF was a $75-million holding company controlled by financier Paul Desmarais, who then assumed the leadership of Power Corporation.
By 1968, TCCF’s principal assets included 100-per-cent ownership of Provincial Transport (a major interurban bus line), majority control of Toronto-based Imperial Life Assurance and its recently acquired 25 per cent stake in Investors Group (the Winnipeg mutual funds manager which itself owned about a quarter of Montreal Trust), a raceway, a radio station, and real estate. Mr. Desmarais also controlled Gesca ltée, which held all the outstanding shares of Montréal’s largest and most prestigious daily newspaper, La Presse, as well as 62 per cent of Les Journaux Trans-Canada’s three daily newspapers and 10 weeklies in the Province of Québec. Gesca would only pass into Power Corporation in 1970. In all of this Mr. Desmarais was ably assisted by Mr. Jean Parisien who became his minority partner when they formally associated in 1959.
List of Officers and Directors1968
Born in Sudbury, Ontario, in 1927, Paul Desmarais had left law school to take over his family’s ailing bus service. After turning it around, he picked up other bus lines in the Ottawa region, in Québec City, and across the Province of Québec, and then diversified into life insurance, communications, and a host of smaller investments.
Commenting on the share exchange with TCCF, the 1968 Power Corporation annual report stated: “Your directors believe that, in addition to economies of scale, the proposed acquisition would further strengthen the Corporation’s operating base and management skills. It would also add significantly to earning power and would cause Power Corporation to become essentially an operating company – albeit with a sizeable investment portfolio – rather than primarily an investment holding company.”
Under the new arrangement Paul Desmarais became Chairman and Chief Executive Officer, and Peter Thomson Deputy Chairman, each controlling about 30 per cent of the votes. In effect, they exercised joint control of Power Corporation by means of a voting trust until Mr. Desmarais bought most of Mr. Thomson’s remaining 10-vote participating preferred shares in 1970 and gained sole control. Right from the start, his focused strategy was to pare down Power’s portfolio much more dramatically than ever before, increase its cash flow, consolidate its control over a small number of diverse holdings, and concentrate on improving their performance. Thus, within a year, two thirds of Power’s assets were in operating subsidiaries, as opposed to less than 40 per cent in 1968.
Most of the financial and recreation-industry interests in which Peter Thomson remained especially interested were exchanged for some cash and the shares his private holding company still held in Power’s core investments. Power’s direct ownership of Québec Télémédia’s communications holdings was sold, as was the radio station CKAC. Inspiration was written off. The investments in Travelodge Australia, Northern and Central Gas, Canadian Industrial Gas and Oil, and Chemcell were soon liquidated. And what remained was reorganized into four basic sectors: industrial, financial, real estate and communications.
In 1968, Power doubled its stake in Dominion Glass to gain majority control, appointed new management, and oversaw the company’s expansion.
In 1969, Provincial Transport was sold to Canada Steamship Lines (CSL) for cash and shares, giving Power majority ownership of the latter.
Two years later, Power bought the remainder of CSL’s outstanding shares, following which, in order to increase its own cash flow and take advantage of new federal tax regulations benefiting operating companies over holding companies, CSL took over most of Power’s investment portfolio at book value.
In 1970, though an attempt to gain majority control of Consolidated-Bathurst failed, Power took effective control with 35 per cent and put William Turner in charge of restoring the ailing pulp and paper company to health. He was succeeded as President of Power Corporation by Jean Parisien.
TCCF’s Imperial Life and Power’s Laurentide Financial, both majority-owned, became sister companies, though they were not merged. In 1969, Power made its first direct investment in Investors Group as part of the financing arrangement by which Investors bought 51 per cent of The Great-West Life Assurance Company, then Canada’s fourth largest life insurance company in terms of assets. Investors Group had been looking for an opportunity to expand into the life insurance industry so that its sales force could offer a broader range of financial services to its customers.
A year later, in two separate transactions, Power boosted its direct stake in Investors Group to over 50 per cent. Then, at the end of 1972, Investors Group did the same with its holding in Montreal Trust, which had fallen on hard times and was in need of new management.
As a result, Power Corporation had in place most of the elements it would need to build an integrated financial services group. It held control positions in the deposit certificate and fledgling mutual fund business as well as in two of the “four pillars” of Canada’s financial services industry, namely trust services and insurance. The foundation was thus laid for the tremendous asset and earnings platform from which Power would derive so much benefit over the decades to come.
Power Corporation exchanged all its various real estate holdings, including Canadian Interurban Properties, Trans-Canada Realties, Show-Mart, and Blue Bonnets Raceway, for a 52-per-cent voting interest in Campeau Corporation, an Ottawa-based real estate development company founded by Robert Campeau. This did not turn out to be a long-term arrangement, however. In 1973, at Mr. Campeau’s request, the company was sold back to him and Power retreated from making major direct investments in real estate.
Despite divesting itself of Québec Télémédia and a string of weekly newspapers, Power retained Gesca’s control over La Presse and Les Journaux Trans-Canada. In 1971, unfortunately, a protracted strike shut down La Presse for four months, causing millions of dollars in losses. Despite that setback, Gesca increased its ownership of Les Journaux Trans-Canada to 100 per cent in 1973 and also purchased Montréal-Matin, a popular daily tabloid.
Even though Power’s earnings began to improve by 1970, interest payments and cash flow pressures forced it to not pay dividends in one quarter. The price of its shares tumbled as a result.
Consolidated-Bathurst continued to be vulnerable to low prices, weak markets and oversupply. Then Davie Shipbuilding, a wholly owned subsidiary of Canada Steamship Lines, suffered a significant loss in 1972 due to unexpected cost overruns in the construction of three 80,000-ton ocean-going tankers, and two years afterwards CSL’s earnings were hurt by an eight-week strike on the Great Lakes.
But Power’s team of head office executives and its talented pool of autonomous managers, with strong leadership from its controlling shareholder, gradually began to produce steadily improving results, which boosted investor confidence and the value of Power Corporation’s stock.
In the case of Consolidated-Bathurst, for example, Power was able to initiate the management changes and set the strategic direction that turned the forest products company around. It wrote off money-losing operations, sold assets, restructured its finances, and netted more than $24 million cash in its abortive attempt to take over Abitibi Paper in 1974. Loans were paid down. Cash flow increased. Dividends rose. When its markets and prices picked up, so too did the fortunes of Consolidated-Bathurst.
Needless to say, all this activity did not take place without a clear sense of direction, experienced directors, dedicated employees, hard work, and the inevitable addition of debt.
In 1975, coincident with its 50th anniversary, Power Corporation made what was then considered one of the boldest and most controversial moves in Canadian business history. It launched a takeover attempt for Argus Corporation, a Toronto investment company with assets of over $200 million, including significant positions in Massey Ferguson, Standard Broadcasting, Dominion Stores, Domtar, and Hollinger Mines. Though by 1976 Power had picked up more than 50 per cent of Argus’s total equity, it was unable to wrest the company from the core shareholders who controlled 60 per cent of its special voting stock, or even get a seat on the board. Ultimately, Power sold its Argus stake in 1978 for $80.5 million.
Nor was that the only disappointment the Corporation experienced around that time. Huge expenditures and union labour troubles caused Power to dispose of Davie Shipbuilding in 1976. Federal regulators prevented the merger of Imperial Life and Great-West Life, prompting Power to sell Imperial in 1977, though not before taking over Imperial’s position in Investors Group. Then, from October 1977 to April 1978, a second serious strike shut down La Presse and Montréal-Matin. In the aftermath Power decided to trim its losses by closing Montréal-Matin, but La Presse went on to enjoy a strong profitability and more than 20 years without another strike.
The latter half of the 1970s was a period of restructuring more than of expansion. In January 1976, the assets which Power had sold to Canada Steamship Lines were returned and CSL became an operating division. Laurentide Financial was sold for shares of Banque Provinciale du Canada, later National Bank of Canada.
In February 1976, Mr. Jean Parisien, at that time Power Corporation's Senior Deputy Chairman and long-time associate of Mr. Paul Desmarais, died suddenly of a heart attack in the Corporation's offices on a Friday night. His untimely death was a source of great sadness to his family, many colleagues and friends. Mr. Desmarais, writing in La Presse on this occasion, captured their feelings eloquently: “Modest, loyal, and considerate, he never sought recognition, he simply wanted to do his work well. Those qualities helped him become one of the chief architects behind the creation of several companies of major importance, which in their turn led the way to more economic growth for Canada and new jobs for many Canadians. Our newspaper was one of the companies where Jean Parisien’s talent left its mark, the impact of which La Presse can now truly measure.”
In 1977, Power’s voting control of Investors Group was increased from 57 per cent to 72 per cent and then up to 99 per cent in 1978, while Investors moved to increase its participation to 96 per cent of Great-West Life. The growing importance of Power’s financial assets was reflected by the successive appointments of Peter D. Curry, Chairman of Investors Group, and then James W. Burns, President and Chief Executive Officer of Great-West Life, as President of Power Corporation.
The restructuring paid off. In 1979, its 55th year in business, Power enjoyed record consolidated net earnings of $98 million – more than double the previous year – and its shares were again split, this time on a two-for-one basis. A year later earnings reached another record of more than $121 million and the market capitalization of its common shares stood at $505.9 million. The base was set for Power Corporation’s next big push, which actually took place on two fronts, one at home, and one abroad.