Contacts between Conrad Black and the Barclay brothers regarding their possible acquisition of The Daily Telegraph were taking place at the same time that Lord Black was promising the board of its owner, Hollinger International, not to interfere with its plans for a disposal of its assets, it was claimed yesterday.
The allegation was made at the start of a highly charged trial in Wilmington, Delaware, which will determine whether Lord Black's proposed sale of a majority voting stake in Hollinger to David and Frederick Barclay should be allowed. The Hollinger board is trying to block the sale. Lord Black is expected to take the stand on Friday. A ruling is expected within about ten days.
Lawyers for Chicago-based Hollinger submitted into evidence two letters written by Lord Black to David Barclay in early November last year. They were written at the time that a special committee at Hollinger was laying bare allegations that Lord Black and three other executives at Hollinger had received unauthorised payments of $32m. The revelations sparked the crisis at Hollinger.
The surfacing in court of the letters suggested that the Barclays brothers and Lord Black were at least entertaining the notion of a deal between them far earlier than has previously been suggested. Last month Lord Black stunned Hollinger by announcing that he had, as the controlling shareholder of Hollinger, unilaterally agreed to sell his stake to the Barclays in a $466m deal.
Hollinger says Lord Black agreed in mid-November to a broad restructuring strategy under which, among other things, the company would hire the Lazard brokerage firm to canvass for a buyer of its assets. It also says that Lord Black expressly agreed not to undercut that process.
Gordon Paris, who replaced Lord Black as the chief executive officer of Hollinger in November and who became chairman last month, was asked by a lawyer for the company if he had previously seen the letters to the Barclays. "Absolutely not," he replied twice.
On 3 November last year, the court was told, Lord Black wrote a letter to David Barclay apparently replying to an expression of interest in taking control of The Daily Telegraph and sister publications. "You have made your desire to buy the Telegraph abundantly clear," Lord Black wrote, before suggesting that Mr Barclay desist from writing to him on the subject.
But in a second letter, dated 11 November, Lord Black, who has denied wrongdoing, apparently changed tack and expressly asked Mr Barclay for help in how he might contact him by telephone, saying that since his previous communication he had had more time to "think of a suitable subject for a talk".
It was between those two dates that the special committee at Hollinger came out with its findings regarding the alleged unauthorised payments and confronted Lord Black. And it was several days after the second letter that Lord Black allegedly agreed to the terms of the restructuring agreement leaving the job of disposing assets to Lazard.
The court action in Delaware is part of a growing web of legal manoeuvres in a bitter struggle that will determine the fate not just of the Telegraph Group but of Hollinger's other newspaper holdings, including The Jerusalem Post and the Chicago Sun-Times.
A raft of alternative suitors has reportedly presented themselves to Lazard with offers. They include Richard Desmond, owner of Britain's Express newspapers, and rival newspaper publisher Daily Mail and General Trust, which both submitted bids for the Telegraph titles last week. Also in line are the private equity firms 3i, advised by the former Mirror Group chief David Montgomery, Candover and Apax.
The Barclay brothers, the famously reclusive owners of The Scotsman and The Business, are not participating in the Delaware case. Under their deal with Lord Black, they would buy his 73 per cent voting stake in Hollinger International held through its holding company, Hollinger Inc of Toronto.
Hollinger International is arguing that the Barclay deal should be blocked because it does not maximise possible returns for its minority shareholders. Also at issue at court are plans by Hollinger to use a "poison pill" defence to repel the Barclay advance. In a statement before the trial, Hollinger said it was acting to "prevent a disloyal director and controlling shareholder ... from manipulating the company's corporate machinery for his own selfish financial purpose".
Lord Black is countersuing to block the board's action against him. In his suit, he accuses some of the directors of "illegal manoeuvring and blatant thievery" of his rights. In addition, Lord Black last Friday filed a defamation lawsuit in Toronto against the same directors saying that with their attacks on him through the press they had attempted to turn him into a "loathsome laughing stock".
Mr Paris testified repeatedly that none of the payments to the executives uncovered by the Hollinger committee had been disclosed to the board or properly authorised. "We did not find any authorisation of those payments," he told the lawyer for Hollinger, Martin Flumenbaum.
When he takes the stand, Lord Black, who is also under investigation by the Securities and Exchange Commission in the US, is expected to say the board misled him when it presented the evidence of alleged wrongdoing to him in November and that, for that reason, he is no longer bound by any agreements reached at that time.
Presiding over the Delaware trial is vice chancellor Leo Stern, who has a reputation for defending the rights of minority shareholders, a fact which may not augur well for Lord Black. He is expected to wrap up testimony on Friday and issue a ruling before 3 March, when the Barclays deal is due to close.
THE MAIN PLAYERS
Lord Black of Crossharbour
Canadian newspaper tycoon who hit the big time in 1986 when he bought The Daily Telegraph. He builds global media empire in Hollinger International but he stands accused of using it as his "personal piggy bank". Unusually for a businessman, he has written an acclaimed history book, a biography of F D Roosevelt, the former US president.
Born in Watford but brought up in Canada, she became romantically involved with Conrad Black 14 years ago, making him her fourth husband. She ensured that the couple moved in the right social circles and was later given a column in the Telegraph. Since 1995, she has been vice-president of Hollinger International.
In May 2003, Hollinger needed to add a non-executive director. It chose Mr Paris - one of its bankers. Shortly after, Hollinger started to implode. Mr Paris was picked to head a committee to look into allegations of impropriety. When Lord Black was forced to step down as chairman in November, Mr Paris was made chief executive.
Sir Frederick and Sir David Barclay
The Barclay twins are self-made multi-millionaires, having made their fortune in property; they live on their ownisland in the English Channel. Known for taking big risks, as they did with the Hollinger deal. They already own The Scotsman and The Business.
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