Friday, May 26, 2006

Power Financial Cashes Out Bertelsmann Stake

The Globe and Mail, Bertrand Marotte, 26 May 2006

The Desmarais family's Power Financial Corp. and European partner Frère Group have cashed out of their jointly held 25-per-cent stake in global media titan Bertelsmann AG, leaving Power Financial with a gain estimated at about $450-million on an investment made five years ago.

The deal, announced yesterday, also means that Desmarais family-controlled Power Financial no longer has a seat at one of the world's largest media companies whose holdings include dominant book publisher Random House and a half-stake in the powerhouse Sony-BMG music partnership.

Brussels-based Groupe Bruxelles Lambert (GBL) and Bertelsmann -- based in Guetersloh, Germany -- said in a joint press release yesterday that Bertelsmann is buying back GBL's 25.1-per-cent stake for about $5.8-billion (U.S.).

Power Financial is a partner, through subsidiary Pargesa Holding SA, in GBL with Frère Group. Power Financial is, in turn, part of holding company Power Corp. of Canada. Both are based in Montreal.

Paul Desmarais, the 79-year-old Sudbury-born financier who built up Power Corp. over the past 40 years, has for more than two decades been a business partner with Belgian billionaire Albert Frère, head of Frère Group.

In 2001, they turned over their 30-per-cent stake in European television company RTL Group to Bertelsmann in exchange for a 25-per-cent position in the privately held German media giant, founded in 1835 as a publisher of hymn books.

GBL became the sole outside shareholder of Bertelsmann, controlled by the Mohn family.

GBL announced this year that it intended to exercise its option to publicly list -- any time beginning at the end of May -- its stake in Bertelsmann.

The move forced Bertelsmann to decide on a course of action: either agree to an initial public offering -- firmly opposed by family matriarch Liz Mohn -- or buy back the GBL stake. It chose the latter.

The buyback is effective July 1.

The $5.8-billion price tag was reported to be at the high end of the market's expectations.

Power Financial's effective interest in GBL works out to 13 per cent, and rough, preliminary calculations put its share of the gain of about €2.4-billion on the sale at about $450-million (Canadian).

Power Financial's key holdings include insurance provider Great-West Lifeco Inc. and mutual fund giant IMG Financial Inc.

The sale of the Bertelsmann stake leaves GBL focused on investments in four European industrial companies: oil and gas behemoth Total SA; utility and energy giant Suez; industrial minerals and building materials conglomerate Imerys; and cement producer Lafarge SA.