On a deep winter morning last year, Leonard Asper summoned a dozen or so Bay Street analysts and investors to Toronto's stately King Edward Hotel for a private lunch. The city was knee-deep in snow, but inside the hotel's Kensington Room, grilled shrimp and white wine were in the offing, and the talk was of warmer climes-Australia.
The chief executive officer of CanWest Global Communications Corp. had become impatient with his company's eroding share price. In less than a year, stock in Canada's largest media company, owner of the Global Television network, 13 daily newspapers and more than 20 cable channels, had fallen to less than $6. Asper was starting to take the slide personally. With good reason: The drop from nearly $12 the previous January had halved the value of the family's controlling stake in the company.
To Asper, the problem was all just a simple misunderstanding stemming from CanWest's decision to cancel the sale of its Australian TV network a few months earlier. It was a flip-flop in strategy, sure, since investors had been told to expect a deal, which would help pay down the company's debt. But to Asper, the market was wildly overreacting.
Now, with a captive audience of some of the most influential CanWest-watchers, an upbeat Asper set about convincing them that CanWest's 57% stake in Australia's Ten network was too important to sell. Flanked by high-level executives flown in from Sydney for the occasion, the CEO had the lights dimmed as he launched into a narrated slide show carefully orchestrated to change Bay Street's mind. "It's got a lot of growth opportunities…" Asper began.
The pitch didn't work.
To everyone but Leonard Asper that day, the problem at CanWest wasn't one of perception. The problem wasn't even Australia itself. Rather, it was the same four-letter word that has tripped up countless overreaching executives over time: debt.
When Asper was handed the reins to CanWest in 1999 by his father, Izzy, he inherited a business that was built using debt as an instrument. Izzy, a street-smart tax lawyer, started CanWest by purchasing a small TV station in North Dakota, then trucking the broadcasting equipment north to Winnipeg. Over the next three decades, the business grew across Canada and overseas. The younger Asper shared his father's vision, it was well known, and he vowed to expand the empire. But did the son have his father's touch?
As he stood at the front of the room enthusing about the Australian TV market, Leonard Asper didn't realize that his most important audience-Bay Street-had already tuned him out. Everyone but Asper could see: Yes, Australia was a nice, profitable asset. But that was precisely why it needed to be sold. If CanWest didn't start paying down its $3.8-billion debt, the company was going to crash.
Two hours after it began, the meeting concluded and the analysts filed out. A few gathered in small groups in the lobby to discuss what they had just witnessed. CanWest was not selling Australia. It was not paying down debt. One analyst, whose firm was once a major investor in the company, shook his head. "They're fucked," he said.
January 28, 2008, was the day Leonard Asper lost Bay Street.
Blame for the problems that forced CanWest into creditor protection in October is typically laid at the feet of Izzy Asper. The patriarch's single-minded drive to create a national media powerhouse led to the purchase of Hollinger Inc.'s newspapers from Conrad Black in 2000. The debt from the peak-of-the-market price-$3.5 billion-outlived Izzy, who died in 2003. Defenders of Leonard Asper ask what the now 45-year-old son possibly could have done to avoid his company's fall.
Quite a lot, actually. What is almost always overlooked in CanWest post-mortems is that Asper missed three critical chances to save his company over a three-year period.
The first opportunity came in the summer of 2005. The markets were strong and the notion of a recession in the near future seemed absurd. What's more, corporate Canada was pulsing with income-trust fever. Any asset that reliably generated cash, but was not in the sort of high-growth position that required prodigious investment, became a candidate for conversion to a trust. Since trusts, by definition, did not pay income tax, but instead paid most of their earnings directly to investors, companies were rewarded with inflated valuations for converting themselves.
Eager to take part in the gold rush, CanWest turned to its newspaper division, which included a dozen English-language dailies across the country, including the Ottawa Citizen, Montreal's The Gazette, the Calgary Herald and The Vancouver Sun, each of them dominant in its market. The division was a perfect candidate for conversion. Though the papers were seeing readership declines typical of the sector, they were spinning off steady cash and not likely to require major infusions of capital. Even better, the papers could be neatly parcelled off into an initial public offering without disrupting CanWest's structure.