The last days of a dynasty

Drowning in debt, Canwest still suffers for the loss of its visionary founder

The last days of a dynastyIn the fall of 1999, Izzy Asper—Canwest’s founder, animating spirit and autocratic warlord—finally surrendered official command to his younger son, Leonard (while staying on as executive chairman). His 35-year-old heir hosted a private family dinner to celebrate the occasion. “What will this mean for me?” the freshly minted president and CEO asked, looking around the table, then answered his own question: “Nothing,” he said. “I will always get in the last words, ‘Yes. Dad. No. Dad. Right away, Dad.’ ”

Nearly a decade later, as the world has turned into an economic killing field, Leonard misses the affirming echo of his father, who had a million miles on his meter and seemed capable of handling any emergency. Izzy died in 2003 but his last deal, the purchase by Canwest Global Communications Corp. of Conrad Black’s newspaper chain, buried the Winnipeg-based company in a catacomb of debt—$4.1 billion—from which it never emerged. That debt, added to later financial obligations, has dragged the entire media empire to the very brink of insolvency. As Maclean’s went to press late Tuesday night, Canwest was still locked in negotiations with its lenders, searching for some way to restructure, without tearing the company apart.

It has been a tragic fall from grace triggered by a confluence of three factors: the unprecedented free fall in advertising revenues on which the Canwest properties depend, and the commensurate decline in value of its assets—once Canada’s largest media holdings—that eliminated the firm’s backup positions, such as the possible sale of its once-luminous Australian TV network. The third factor was Leonard Asper’s gentlemanly management style, which didn’t fit the drastic shift in circumstances.

In Izzy’s day, Canwest’s enemies were mainly uppity Palestinian militants, critics of Winnipeg culture, and the lowbrows who preferred elevator music to jazz. Now, the threats faced by the family which controls the working majority of Canwest’s stock are deadly and immediate. Leonard Asper has been trying to spin off non-core assets in a desperate attempt to stop the slide. It hasn’t worked. After posting a loss of $1.4 billion in the last quarter, the avalanche has now reached terminal velocity.

The company’s debt agreements were all subject to covenants; each missed obligation set off fiscally punishing consequences. As its business crumbled over the past year, Canwest found itself scrambling from missed deadline to missed deadline, desperate to keep its creditors at bay. It was not a case of vulture capitalists claiming their prey. No one was anxious to take over the firm’s struggling assets, since it was very clear that the greatest asset—Izzy’s uncanny ability to balance the untidy and overextended empire’s fiscal resources—was an irreplaceable element in the mix. Try as he might, Leonard didn’t have the killer instinct of his father, and when you are running a family company, it’s difficult, as one observer put it, to go against the wishes of a blood relative who carved the family turkey last Thanksgiving.

Looking back, it’s easy to pick the moment when Izzy Asper’s youngest child learned the lesson that eventually landed him in Izzy’s job. It happened one summer afternoon in 1968, when Leonard was only four years old. He sold lemonade to passersby in front of his Winnipeg home and boasted to his father that he had earned six dollars. Izzy, who loved his kids but raised them to follow a frontier business ethic, used the occasion to give the boy a lesson in how business really worked. “How much did it cost your mother to go to the store and what did she pay for the lemonade?” he asked. “What was the cost of the Dixie cups? What was the price of your cart and the tray you used as a cash register?”

The harsh realities of entrepreneurship must have sunk in because Leonard readily admits that as an executive he never signed a business deal without remembering the lemonade episode—though at the time, he recalls, “I’d lost six dollars and was a puddle of tears.” At eight, he was trying to memorize the headlines in the Globe and Mail so that he could keep up with supper conversations; four years later he was regularly perusing the Wall Street Journal and the Canadian Securities Handbook. “In our house nothing came for free,” he remembers. “Our parents didn’t give us money just because they had it. There was no reward unless you earned it. No handouts, but unconditional support.”

Leonard was the shyest of the family and sometimes forgot what he had rehearsed when it was his turn to speak out at the dinner table. But he was also the most studious. He attended Brandeis in Waltham, near Boston, the only non-sectarian Jewish college in the U.S., where he graduated with honours in political science. It was his first taste of independence, and it was there that he began to gain the self-confidence that drove him to aspire to the highest office in his father’s firm. Following graduation, he took a law degree at the University of Toronto and in 1997, when both his elder brother David and his sister Gail declined the honour—even before it had been offered—Leonard launched himself on the path to succeed the legendary Izzy.

If the father’s treatment of his children bordered on tough love, it was because he was running a form of dress rehearsal to determine if any of them were fit to sit in his chair. He was all too aware of the pitfalls of a soft-hearted offspring assuming command of the hard-earned family fortune, and had no sentimental attachment to keeping management of Canwest within the family. “I never trained my children, or caused them to be trained, to run this company,” he told me when I was researching a book about him that was published last year. “I trained them to own the company. There’s a huge difference. I would have been quite content if Canwest was professionally run by disinterested parties, which is where I predict it will eventually go. You don’t get friction when three owners are sitting in a room, it’s only when one of them is CEO and he gets defensive about what he did last week or why dividends had to be cut because we bought Company X, and your sister or brother or your nieces and nephews are mad at you.”

“I didn’t encourage it,” he emphasized in a later interview, when all three of his offspring had joined the company in executive positions. “In fact, I was vaguely in opposition to any of the kids coming into the business. They were all practising lawyers and were doing very nicely on their own. It was they who got this dynastic glaze in their eyes—which I generally discouraged. I don’t believe in dynasties and I don’t believe in being a ghost to your children, having to live under the constant comparison to somebody else, good or bad. It was ordained that no child would come into the business. But it happened through a series of freak, innocuous circumstances. When daughter Gail slipped through the net, that was the end for me.” In 1989, homesick for Winnipeg, she left her successful Halifax legal practice to become Canwest’s general counsel. Her two brothers soon followed.

After university, Leonard had purchased a theatre-restaurant in Florida, which showed second-run movies during dinner, and hoped to expand it into a chain. Following Gail’s example he persuaded his father to let him try his corporate luck and joined the company’s corporate development department. David had also moved into the business but eliminated himself from the top spot by confessing that he was too emotional to lead. “I’m a s–t disturber and a bit of a dreamer and probably focus too much,” he said.

Izzy Asper as CEO resolved the succession dilemma in 1997 by moving to executive chairman and appointing Peter Viner, a Canwest veteran, as his successor in the CEO’s chair. He was specifically directed to train Leonard and report to the father whenever he thought the son was ready to take over. That took two years. Leonard became president and CEO in 1999. His first major role was to negotiate the details of Canwest’s $3.2-billion purchase of Conrad Black’s newspaper chain in 2000, though the overall strategy was masterminded by Izzy in what turned out to be his last major deal. It was this deal that eventually pushed Canwest’s debt load past the breaking point, since it halved the company’s worth. Though Leonard helped to negotiate the purchase, he later lamented, “Obviously, Dad didn’t think we were very good deal makers. Because what he did was saddle us with so much debt that we couldn’t make another deal in our lifetimes—an incredible estate plan.” The National Post’s losses grew so serious that at one point Izzy joked that he would donate the paper to Canada’s Lebanese ambassador because if his government had to look after its finances, it wouldn’t have any funds left over to sponsor terrorism.

After Izzy’s death, Leonard took over in fact as well as in title. He was a capable administrator who had the rotten luck to inherit his family’s media holdings in the worst climate since Noah launched his ark. Somehow, the misfortunes of most corporate empires were blamed on angry gods or crooked American bankers, while the blame for Canwest’s fall from grace was assigned entirely to Leonard. Still, there was one serious mistake that was strictly his doing that caused incalculable collateral damage. That was his appointment of his friend Rick Camilleri as the company’s chief operating officer. What Camilleri did was to ditch the best of the remaining senior staff members who had been hired by Izzy and were comfortable with their mandates and how to fulfill them. In their stead, he imported American high flyers who knew little about their assignments and a lot less about Canada.

Another losing proposition was Canwest’s late decision to fold its newspapers into an income trust, just before their tax position was adversely affected by the Harper government’s fiscal policy switch that lost the company its advantage. Leonard then decided to buy back the Canwest papers out of the trust at $9 a share—a cost of $500 million.

Leonard’s biggest move was, in January 2007, his $2.3-billion purchase (along with New York’s Goldman Sachs) of Alliance Atlantis’s 13 specialty channels, to make up for Izzy’s neglect of this profitable field. That was a good move but it created even more debt. The Canadian company’s down payment was only $262 million (for 36 per cent), but if earnings sag low enough, and debt levels rise, the complex deal could force Canwest subsidiary CW Media to buy out Goldman’s stake, possibly at a price that it can’t afford.

In the early days, the Alliance Atlantis deal caused Canwest’s stock to shoot up to $12. It has since plummeted as low as 20 cents. The company’s market capitalization is below $25 million, compared with $4 billion at its peak. In its heyday, the Canwest media empire employed more than 10,000 spread over four continents, and reached 30 million viewers and readers daily. Its Canadian TV channels were the country’s most profitable, with 16 per cent of the national viewing audience, and 30 per cent of the profits.

Endless questions remain. Is Prem Watsa of Fairfax Financial still interested in parts of the business? Who might buy the newspaper chain, and at what price? What will become of the National Post? Will there be anything left for the Aspers themselves?

This much is clear: Leonard is facing serious, possibly terminal financial trouble. Canwest’s bond holders are owed an overdue interest payment of US$30.4 million on US$761 million of senior subordinated notes. The total corporate debt remains at $4.1 billion, and the bond holders or the lending syndicate led by the Bank of Nova Scotia could drive it into bankruptcy protection at any time. Canwest Media’s original $300-million credit line has already been reduced to $112 million, most of which has been drawn down.

At the same time, revenues of Network Ten, the once highly profitable Australian television operation, have stalled badly and the property is in danger of going into default. The company’s most consistent money loser (at one point dropping $1.5 million a week) has been the National Post, which the Aspers have turned into a Conrad Black house organ. Black originally sold Izzy 50 per cent of the paper for $100 million, and the balance, a year later, for a looney. Izzy overpaid both times.

Individuals die; family dynasties abide—or so the theory went. The reality of succession in today’s globalized economy—even before the crash—has been sharply different. Canada was once run by a self-perpetuating clique of moneyed clans, most of whom helped finance the social welfare and creative arts of the communities in which they lived. Few did so more passionately than Izzy Asper in Winnipeg, through his family foundation which has given away well over $200 million to local improvements, and who, with Ottawa’s help, is currently building the Museum for Human Rights. (The only remnants of Winnipeg content within the Asper clan are David’s recent deal to buy the Blue Bomber football club and the fact that long-time Toronto resident Leonard maintains his Winnipeg connection by keeping his Manitoba cell number.)

The odd patriarch may have maintained the primacy of his offspring on the basis of their seeds instead of their deeds, but in an age when global corporate conglomerates are as mean as they are lean, family-run firms have become arcane exceptions. Two dozen of the most powerful families that had once held sway over the Canadian economy lost their influence and their pride of place, not by nationalization or some other anti-capitalist device—but by the iron laws of genetics. The passage of the entrepreneurial gene—the spark that gave rise to the original family empires—has long been extinguished. It simply is not transferable from one generation to the next. The casualty list has included such once-mighty family-owned business empires as the Eatons, the western branch of the Siftons, the Birkses, Kofflers, Crosbies, Romans, Blackburns, Bassetts, Lundrigrans, Poslunses, Creeds, Burtons, Steinbergs, Hermants, Gersteins, Jefferys, Iveys, McLeans, Woodwards, Crosses and several lesser clans. Now, the Aspers have outrun their corporate achievements. What was once Canada’s mightiest media empire is fighting for its life, against seemingly insurmountable odds. The Asper family had a great run but the empire Izzy built is running out of time for a resurrection.

Looking for more?

Get the Best of Maclean's sent straight to your inbox. Sign up for news, commentary and analysis.