The acquisitor

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THE ACQUISITOR

Pierre Peladeau already has a licence to print money in Canada – but he says that he wants much more than that. Last year, the colorful 64-year-old chairman of the Montreal-based international printing and publishing empire Quebecor Inc. acquired a licence to print bank notes for the government of Canada and several other countries as part of his $161-million purchase of 23 printing plants from BCE Inc., the Montreal-based telecommunications conglomerate. But last week, Peladeau forged ahead with his drive to expand his empire even further when he acquired control of 15 U.S. printing plants from flamboyant British media baron Robert Maxwell for $575 million. The deal will almost double Quebecor’s annual revenues to $2.6 billion, pushing it past third-place Maclean Hunter Ltd., the publisher of Maclean’s, to make it the second-largest Canadian-based media conglomerate after Kenneth Thomson’s giant Thomson Corp. And last week, a confident Peladeau said, “There’s no reason to stop now.”

Clearly, Peladeau’s voracious appetite for acquisitions has not been satisfied. But as the deals get bigger, Peladeau has had to rely more and more on help from powerful outsiders. Last week, the Montreal-born entrepreneur acknowledged that he could not have completed his biggest purchase to date without $243 million provided by his two partners in the massive buyout – Maxwell himself and the Quebec government’s increasingly aggressive pension fund manager, the Caisse de depot et placement du Quebec. At the same time, the deal greatly extends Maxwell’s small existing stake in the Canadian media by giving him a 20-per-cent share of a new Quebecor subsidiary that will hold all of its Canadian and U.S. printing plants.

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Prior to last week’s deal, Quebecor already owned 46 printing plants in the United States and Canada and printed everything from The Winnipeg Sun to Le Saint-Laurent Echo. The company’s other major holdings are a forest-products company, Donohue Inc., Canada’s largest newspaper and magazine distribution company, Messageries dynamiques, and more than 60 magazines and newspapers of its own, including Le Journal de Montreal and The Sherbrooke Record. In addition, last year’s acquisition of the BCE plants gave Quebecor the lucrative contracts to print many of Canada’s telephone directories.

By purchasing Maxwell’s U.S. plants, Quebecor is acquiring long-term contracts to print certain sections of the successful mass-circulation weeklies Time and Sports Illustrated, as well as weekend magazines for several U.S. newspapers. And Maxwell will gain his 20-per-cent stake in the new venture by reinvesting $115 million of the $575 million in cash he will receive for his plants. Meanwhile, the Caisse will buy a debenture for $128 million which it can convert into a 22.5 per cent ownership stake in the new company, still leaving Peladeau with a 57.5-per-cent controlling interest.

With the addition of the new plants, Peladeau’s son, Pierre-Karl, Quebecor’s vice-president of operations, said that Quebecor now faces less of a threat than before from a recession because it has diversified its printing operations. He also rejected industry analysts’ suggestions that the deal is part of a strategy to shift operations to the United States as tariffs protecting the Canadian printing industry are removed over a five-year period under the Free Trade Agreement. He argued that Quebecor’s Canadian plants are so specialized that none are at risk. Still, one of Peladeau’s business rivals, Maclean Hunter president Ronald Osborne, cautioned that, in general, Canadian printers are hampered by higher costs than their U.S. counterparts. Said Osborne: “One of the things the Canadian printing industry has to watch out for is that its cost structure is much higher than that in the U.S. – the wage rates in particular.”

Despite the risks, the deal is, at the very least, a symbolic triumph for the outspoken Peladeau, a supporter of the separatist cause during the 1980 Quebec referendum who later chaired the Montreal Canada Day committee in 1987. Once shunned by the Montreal business establishment because of his former controversial freewheeling lifestyle and lavish parties, Peladeau now has secured his position in the front ranks of Canadian media barons after four decades in printing and publishing. A graduate of McGill University law school, Peladeau began his career in 1950 when his mother, a widowed schoolteacher, lent him $1,500 to start a community newspaper. In 1964, he pooled his earnings from several community newspapers and launched Le Journal de Montreal. He filled his new tabloid with reports of crime, sports and celebrity gossip – but pointedly, no editorials. His papers have followed the same sensational formula ever since, even though Peladeau’s own private taste in reading is for the more sedate works of 19th-century French author Honore de Balzac.

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Peladeau’s business ties with the equally hard-driving Maxwell, 66, began in 1987, when they joined forces and purchased a 55-per-cent stake in Donohue. Then, last year, Maxwell took a 25-per-cent position in Peladeau’s new English-language tabloid, the Montreal Daily News. And in a speech in Quebec City last February, the Czech-born magnate reiterated his desire to invest in every area of the Canadian communications industry.

For most of this year, however, the usually acquisitive Maxwell has been selling assets, rather than acquiring them, in order to reduce the debt generated largely by his $3-billion acquisition last year of the giant New York City-based book publisher Macmillan Inc.

Peladeau said that he would not have gone ahead without the $128 million he solicited from the Caisse. For the Caisse, the deal is the latest example of an aggressive investment strategy that has transformed it into one of the nation’s most powerful financial institutions, with assets almost three times greater than the Alberta Heritage Savings Trust Fund. In fact, there are now few major deals involving Quebec-based companies in which the Caisse does not participate, and Peladeau will undoubtedly consider it again as a backer for his next large acquisition. But last week, Peladeau declined to speculate on his next move, although he playfully targeted one of the rivals he has surpassed. Said Peladeau: “Maclean Hunter looks like a damn good acquisition right now.” Clearly his major priority at the moment remains spending money rather than printing it.

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