By: E&P Staff
Hollinger International Inc.’s board approved the sale of newspapers to top executives at bargain-basement prices without having outside experts evaluate those transactions, the Chicago Tribune reports.
In most cases, the board and its audit committee, headed by former Illinois Gov. James R. Thompson, granted approval based only on assurances from the executives who stood to personally benefit from the deals, according to a recently unsealed shareholder’s lawsuit.
“In short, the board never said no,” the suit by institutional investor Cardinal Value Equity Partners said.
“While the Hollinger executives were treating Hollinger like their private piggy bank, Hollinger’s board, including ostensibly blue-ribbon independent directors and Hollinger’s audit committee, were totally quiescent,” the suit alleged.
Connecticut-based Cardinal, which invested money in Hollinger, contends that former Chief Executive Conrad Black and former Chief Operating Officer David Radler were among the executives who breached their fiduciary duties and misappropriated assets of the Chicago-based company.
Cardinal based its suit on minutes from board meetings and other documents relating to transactions in which Hollinger, owner of the Chicago Sun-Times, the London Daily Telegraph and the Jerusalem Post, sold more than $500 million worth of newspapers.
In some of those deals, Hollinger sold newspapers to Horizon Publications Inc., a private company owned by Black and Radler.
In those sales and others, Black, Radler and several of their lieutenants also received tens of millions of dollars in special payments for agreeing not to compete against papers that Hollinger had sold.
In its suit, Cardinal alleged that the executives “looted” Hollinger of at least $300 million through the non-compete payments, excessive management fees and bargain sales of newspapers that never were scrutinized by outside experts.
On at least two occasions, the audit committee, led by Thompson, approved selling Hollinger newspapers to Black’s and Radler’s Horizon Publications for $1, the suit said.
Cardinal filed its lawsuit Dec. 10 in Delaware, where Hollinger is incorporated. A judge there kept it under seal until Friday, when he opened it to the public.
In addition to seeking damages for itself and other shareholders, Cardinal has asked the judge to prevent Hollinger from approving any new agreements benefiting executives.
Hollinger’s new management team said Friday that it had agreed to such a moratorium while a special committee of its board, along with the U.S. Securities and Exchange Commission, conducts an investigation that “includes matters raised in the complaint.”
New management took control of Hollinger in November after the company revealed that Black, Radler and others had received at least $32.1 million in unauthorized non-compete payments. Black stepped down as CEO, and Radler left the company. Radler also had been publisher of the Sun-Times.
Though he no longer has day-to-day control of Hollinger, Black remains chairman of the board and still owns controlling stock in its Toronto-based parent company.