Canadian Enterprise Shatters under Debt

Article excerpt

CANADA'S largest conglomerate is starting to unravel.

Edper Enterprises Ltd., controlling 35 public companies and hundreds of private companies in sectors as diverse as forest products, real estate, and banking, has sold off huge chunks of its corporate empire in recent weeks, under the pressure of crushing debt and stern financial regulators.

Its main publicly traded firms have halved their dividends; shares of all the companies involved have plummeted on the Toronto Stock Exchange and some bonds are trading as low as 30 cents on the dollar.

Earlier in February the group sold its stake in Macmillan Bloedel Ltd. for $971 million (Canadian; US$771 million); the same week it sold its 38.5 percent share in Canada's largest brewery, John Labatt Ltd., for $993 million.

Edper was founded by Edward and Peter Bronfman, the relatively poorer cousins of the controlling shareholders of the Seagrams distilling empire. The brothers built a complex corporate structure employing 110,000 which included Labatt and Macmillan Bloedel, as well as Trizec and Bramalea, two troubled real estate firms with ties to the failed Olympia and York property firm.

The firm is now controlled by Peter Bronfman and a team of managers. The strategy has been to pay managers low salaries and reward them through stock ownership plans backed by loans. Many grew rich; annual reports for the booming late 1980s shows once humble accountants worth $30 million or more.

BUT as the shares in the underlying companies have fallen, paper millionaires have turned into debtors, and thus many of the managers are eager to sell assets to pay debt.

One of the most important investments was in Royal Trust, once the largest trust company in Canada, which has caused the recent sell-off of assets and restructuring of the conglomerate. A trust company offers financial management for family estates plus the services of a savings and loan institution.

"Under Edper, Royal Trust changed into a holding company with investments not just in Canada but in the United States and Britain," says Tom Starkey, an analyst with Sanwa McCarthy Securities in Toronto. …