Black goes into battle to save sale of 'Telegraph' to the Barclays

Click to follow
The Independent Online

Conrad Black, the Conservative peer under investigation by US financial regulators, will appear in court this week to defend his right to dictate the destiny of Hollinger International and its Telegraph newspaper titles, in what will be one of the most sensational legal hearings in recent US corporate history.

The case, due to start on Wednesday, will decide who ends up owning The Daily Telegraph and the other newspaper assets of Hollinger International, the company Lord Black of Crossharbour created but which ousted him as chairman and chief executive last year.

The small courtroom of Judge Leo Strine in Wilmington, Delaware, is set to be transformed into the centre of an international media scrum as the battle for control of Hollinger International enters a critical phase.

As well as Lord Black, other key witnesses in what will be a highly charged affair will include Richard Breeden, the former chairman of the US Securities and Exchange Commission, who has played a central role in investigating Lord Black's financial dealings on behalf of Hollinger International. Also expected to appear is Gordon Paris, who chaired a Hollinger International committee set up last year to investigate payments to Lord Black, which the company later alleged were unauthorised.

This week's case will hear a lawsuit brought by Hollinger International, which seeks to stop Lord Black selling his 73 per cent voting stake in the company held through Hollinger Inc to Sir David and Sir Frederick Barclay - a surprise deal that was sprung on the world last month. Lord Black is countersuing to safeguard the transaction.

The case is due to last three days, with the verdict expected a week later. The Hollinger International board says that by bringing the case, it "intends to create a means and an opportunity for restitution for the company and its shareholders".

From Lord Black's camp comes a more dramatic countersuit, alleging "blatant thievery" of his rights.

The court is certain to hear the articulate and fully self-confident Tory peer in full, booming flow, lashing out at his detractors and asserting his right to sell his shares to whomever he wants.

Lord Black's case is that he was selling shares in another company, Hollinger Inc, which has nothing to do with the board of Hollinger International. He wants the court to recognise his right to do so, approval of his action to change Hollinger International's byelaws and for the court to "void" the agreement in November that saw him step down from the board and allow the company to put its newspapers up for sale. That November statement also saw the company allege Lord Black had received $32m in unauthorised payments, which the SEC is now investigating.

But the peer is expected to submit evidence to the court this week arguing that Hollinger International's audit committee knew about the payments and had approved them, thus making the November agreement void. Lord Black's deal with the Barclays completely undermined, a plan by Hollinger International's board to sell the group's newspapers to the highest bidder.

The board of Hollinger International wants the Barclay brothers' deal stopped. It wants a disbanded corporate review committee at Hollinger International reinstated and for the "strategic process" to sell assets to be allowed to go ahead.

For good measure, Hollinger International also wants Lord Black's super-voting shares in Hollinger International to be turned into ordinary shares, even if the Barclays transaction stands - thereby robbing the brothers of control. Lord Black's agreement with them allows the Barclays to walk away from the deal under these circumstances.

And, if all that fails, the Hollinger International board wants a poison pill defence sanctioned - which would involve issuing a massive number of new shares to all shareholders but the Barclays - so diluting them to just a 20 per cent stake.

The small town of Wilmington is poised for an intense week of activity. Hotels in the town have been heavily booked, with the four-star Hotel du Pont, near the courthouse, promising to become the base for the dozens of combatants, lawyers, journalists and interested parties that will descend on this otherwise obscure outpost of corporate America.

The case is a humiliating development for the once proud Hollinger International, which was built by Lord Black into a highly influential media company. Its papers include The Daily Telegraph, The Sunday Telegraph and The Spectator magazine in the UK, the Chicago Sun-Times in the US and The Jerusalem Post in Israel. The company's board boasted luminaries such as Henry Kissinger, the former US Secretary of State.

This week's case is a civil action about the issue of shareholder rights: whether a majority shareholder should be stopped from doing something that disadvantages minorities.

It is separate to the serious allegations levelled against Lord Black and some of his fellow former company directors of financial malfeasance which are under investigation by the SEC.

They are accused of improperly taking millions of dollars from Hollinger International over several years and of entering into the sale of company assets in deals that benefited them personally. Lord Black maintains the payments were known about and approved by the company's audit committee, headed by James Thompson, the former governor of Illinois.

There are also other civil lawsuits outstanding, such as the case in Chicago where Hollinger International is suing Lord Black for $200m it says he and other former directors improperly took from the company. On Friday last week, the Conservative peer filed a lawsuit in Toronto seeking damages of C$850m (£340m) for defamation from a number of Hollinger International directors.