Telegraph forced to alter Canadian newspaper plan: Hollinger to sell Southam shares to power corporation

THE TELEGRAPH, publisher of the Daily Telegraph, will go ahead with a modified version of its plan to invest in Canadian newspapers, despite a deal announced yesterday by its partner and majority shareholder Hollinger, which disrupts the original proposal, writes Patrick Hosking.

An extraordinary meeting scheduled for 30 March has been adjourned while the Telegraph re-jigs the deal, in which it plans to invest in a 50 per cent stake in a company holding shares in Canada-based Southam.

Hollinger said yesterday it had agreed to sell 12.86 million Southam shares to Power Corporation of Canada, leaving it with 18.7 per cent of Southam. It had planned for the Telegraph to take a half-share of its original 22.5 per cent stake.

Southam, which said it was considering a rights issue to raise up to Cdollars 75m ( pounds 40m), is issuing Cdollars 180m of shares to Power at Cdollars 14 each. This will lift Power's shareholding to equal Hollinger's at 18.7 per cent. Southam would use the proceeds from the private placement and the rights issue to reduce debt.

Hollinger said it planned to sell the Southam shares to Power at a price of Cdollars 14 a share, the current stock market price. That compares to an effective price of Cdollars 18.10 it had planned to charge the Telegraph.

The Telegraph said it would send further information to shareholders as soon as possible after its independent directors, advised by N M Rothschild, had examined the development.

Southam, which is loss-making, is the largest newspaper group in Canada, publishing the Vancouver Sun, Montreal Gazette and 15 other daily newspapers. It also produces business magazines, organises exhibitions and owns Coles, the country's largest bookshop chain.