State Law Could Jeopardise Hollinger Takeover

An obscure law in the state of Delaware could prove a stumbling block to the ambitions of the reclusive Barclay brothers with regard to Hollinger International.

The two press barons have tabled a £260 million offer for the publishing group, which is currently owned by Conrad Black. However, the deal is opposed by a majority of board members who have ousted the media mogul as chairman and are currently considering their options.

Lord Black controls Hollinger International through his Toronto-based holding company Hollinger Incorporated, but the firm is registered in the US state of Delaware. It is therefore subject to Section 203 which states that any shareholder assuming control of a company without boardroom consent is prohibited from engaging in ‘business combinations’ for three years.

In other words, the Barclays would be prevented from merging or selling any of the constituent parts of Hollinger, including the Telegraph titles, the Chicago Sun-Times and the Jerusalem Post for the foreseeable future.

Beth Young, a senior research analyst at The Corporate Library, told the Financial Times: “Section 203 would prohibit the Barclays from exercising the most important aspects of control – either merging the assets with other companies they control or taking assets out for themselves.”

The Barclays could be exempt from Section 203 if they are able to increase their voting stake in Hollinger International from the 73% that they have agreed to buy to 85%. Another way out would be if their bid got approval from two-thirds of the firm’s minority shareholders.

However, this latter scenario is improbable given that Hollinger is suing Black for taking unauthorised management fees and there is unlikely to be much support for any deal that benefits him directly.

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