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Last Updated: Friday, 27 February, 2004, 11:43 GMT
Q&A: What now for Hollinger?
Lord Black
Lord Black could face charges over alleged improper payments

Conrad Black's audacious attempt to sell off his newspaper empire to the Barclay brothers - beneath the nose of other Hollinger International shareholders - has been thwarted by a US court.

BBC News Online looks at what the ruling means for the papers - and for Lord Black.

Didn't the Barclays claim their purchase of the Telegraph titles was a done deal?

They weren't the only ones who thought that.

But they didn't reckon with the judge - or chancellor, as they call them in Delaware, where the court was located.

His ruling was couched in legal terms, but was damning about Lord Black's conduct.

Black's attempt to sell Hollinger Inc - the vehicle through which he controls Hollinger International - to the Barclays amounted to "self-dealing", a "cunning and calculated" attempt to keep the proceeds of a sale for himself.

That avenue has now been comprehensively blocked by Chancellor Leo Strine.

The prospective sale of International's assets is now down to International itself, under advice from blue-blooded investment bank Lazard.

What difference does it make whether the Barclays buy Hollinger International or Hollinger Inc?

For a start, selling Inc (as Chancellor Strine dubs the latter firm) to the Barclays could have effectively shut down the investigation currently under way into the allegations of improper payments.

International says millions were paid to Black and other directors in "non-compete" payments without approval.

Chancellor Strine made it clear he believes Lord Black lied to the court about the payments, and the investigation can now go ahead.

Moreover, Inc is effectively majority-owned by Lord Black, so a sale would have benefited him the most.

Inc, in contrast, only owns 30.3% of International. So Black will benefit much less from whoever eventually takes the company off his hands.

Hold on a minute. I thought Lord Black had control of International - how can you do that with only 30% of the shares?

There you have the nub of the matter - and a headache inducing corporate structure to boot.

Lord Black does not directly own International. In fact, even though - as Chancellor Strine pointed out - he usually talks as if the papers it owns were his and his alone, his effective stake in International is 15%.

But two factors outweigh this comparatively modest figure.

Most importantly, the majority of the International shares that Inc owns are "B" shares, which according to International's by-laws have 10 times the voting weight of ordinary "A" shares.

That means the 30.3% stake wields more than 70% of the votes.

Secondly, the International stake is held through several layers of holding companies, each majority-owned and with boards which Chancellor Strine described as "supine".

At the top of the tree is Ravelston, a Canadian privately-held firm of which Lord Black owns about 65%.

Ravelston, in turn, owns 78% of Hollinger Inc.

And Inc holds the 30.3% International stake.

Understood. But where does that leave the papers?

On the block, for the moment.

The ruling has made sure that Black's 70% vote on the International board has been blunted, thanks to a "shareholder rights plan" - commonly known as a "poison pill defence".

That leaves Lazard in charge of the ongoing process of talking to prospective buyers - which could include the Daily Mail, Daily Express owner Richard Desmond, and several corporate buyout groups from both the UK and the US.

Will the Barclays still bid for the papers?

It remains to be seen.

BBC Business Editor Jeff Randall believes that they may well be backing away, not least because the price tag for all of International is likely to be a lot higher than the 260m they reportedly agreed with Lord Black.

One upside for the Telegraph is that the court decision means journalists have called off planned industrial action over a pay claim.

They are holding fire until a new management is in place.

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