When the mighty fall

Abstract:

The Belzberg family was once one of the most feared corporate raiders in North America. However, a series of hostile takeover bids caused the family’s First City Financial Corp and several subsidiaries to accumulate $1.6 billion in debt, placing the firms at risk of bankruptcy.

Full Text:

On a cool, cloudy day last week, Brent Belzberg traded hissuit and briefcase for shorts and athletic shoes and went for a 10-km run on the slopes of Montreal’s Mount Royal. The 40-year-old chief executive officer of First City Financial Corp. Ltd. is in training for the annual New York City marathon on Nov. 3. But that race is only one of the challenges that BElzberg is currently facing. In the coming weeks, the lean, balding executive will also be working hard to persuade his company’s shareholders and creditors to accept a radical restructuring plan for First City that is intended to improve the debt-laden firm’s chances of survival. If the plan is rejected, First City said in a terse statement last week, “it may be necessary to liquidate the company and dispose of its assets.”

Last week’s annoucement by First City appeared to close the final chapter on a family-controlled business empire with assets of $5.1 billion. Founded in 1962 by three Calgary-born brothers — Samuel, Hyman and William Belzberg — First City Financial grew from a small, regional real estate and trust company into an aggressive merchant bank and securities trader with interests across Canada and the United States. At the height of their power in the 1980s, the Belzbergs ranked among North America’s most feared corporate raiders, launching a series of hostile takeover bids for such companies as Gulf Oil Corp. and Southland Corp.

In the process, however, First City accumulated debts totalling $1.6 billion, swamping many of the firm’s subsidiary companies in red ink. In the first six months of this year, First City Financial lost $321 million. Said one Toronto-based investment analyst, who asked not to be named: “It is a good thing these guys had such a blast in the 1980s, because the 1990s are killing them.”

In their campaign to save the firm, the Belzbergs, who now control 80 per cent of First City Financial, have offered to hand over control of the company to a group of lenders that is owed $305 million. The three brothers would be left with a 15.3-per-cent stake in the company, to be reanmed Harrowston Corp. In an effort to reduce their debts, the Belzbergs have also put Canada’s seventh-largest trust company, Toronto-based First City Trust Co., which has a national network of 31 savings branches in six provinces, up for sale. Under the restructuring plan, Brent Belzberg, Hyman’s son, would be tha only family member to remain on Harrowstown’s board of directors.

At week’s end, there were unconfirmed reports of interest in an acquisition of First City Trust. Industry analysts said that Montreal-based National Bank of Canada, which, like First City Trust, specializes in commercial loans to midsize companies, may be among the company’s suitors. Still, the Belzbergs appear to have lost their btalle to maintain control of one of Canada’s most controversial business empires.

>>> View more: Stepping out in her shoes