Part 28 (1/2)
MCGIVERIN'S RUN 469.
took over a major real-estate company (despite his selfconfessed ignorance of the subject) and began to a.s.semble and build his om n shopping centres and shake up the I IB(,s oil investm~nts in a huge gamble that almost paid off, In the decade and a half of his dominance he expanded Company sales tenfold from $502 million to S4,829 million, and even if the impact of his stewards.h.i.+p was m.u.f.fled by the recession of the 1980s, he altered the I IBC ,s corporate culture forever.
But the bill was staggering. McGiverin, fully supported by the board, which was loaded with financial experts, leveraged the Company to the hilt so that its once modest ”blister on the balance sheet” became a fes- tering boil. Under McGiverin, the 1113Cs debt grew exponentially from $70 million to $2.5 billion while the number ofissued shares nearly doubled.
The pain resulting from the huge debt became intense when prime interest rates peaked at 22 X percent in September 1981.* McGiverin's pi iority a.s.signment was to create a major retailing presence in Toronto, the countrys largest marketplace. One problem was that he alone among his planning staff had ever lived there, and everyone except for his comptroller (Donald Wood, who was from Niontreal), was a Witimpegger, totally unaware of the Ontario city's retailing geography. ”We wanted to be at Yonge and Bloor because we would then be sitting on the crossroads of the subway system,” Wood recalled, ”but market research was of little help because they gave us a
*In early 1973, three Canadian brokerage houses, Richardson Securities, Harris & Partners and Wood Gundy Lin-t.i.ted managed a syndicate that floated $100 million in convertible HBC debentures. 'rhe proceeds were delivered to McGiverin in the form of a huge cheque embossed on the back of a stretched beaver pelt, certified by the Canadian Imperial Bank of Commerce (see ill.u.s.tration on page 470).
470 MERCHANT PRINCES.
When underwritersfor a new $1 00-million debenturejor The Bay made payment on July 21, 19 73, they appropriate4y chose a beaver pelt on which to write the huge cheque. Left to right: Irwin Nightingale, a.s.sistant T-easurer, HBC; Lionel Goffart, Blake, Ca.s.sels & Graydon; Donald Fraser, Richardson Securities; lain Ronald, Treasurer, HBC; Peter Wood, Vice-President, Finance, HBC: Howard Bennett, Richardson Securities; Jim Pitblado, Harris & Partners, Donald McGiverin, President, HBC; Pat Vernon, McCarthy &McCarthy, _7ohn O'Brian, Harris & Partners.
potential sales range of $15 million to $30 million. We opted for a $60-million, 260,000-square-foot flags.h.i.+p department store and made the final decision in the recreation room of Don McGiverin's house on a Sunday morning in the fall of 1971, with most of us not quite sure where Bloor and Yonge actually was.” That dramatic choice meant that McGiverin himself had to
*The final decision on Bloor and Yonge made by the HBC board on November 19, 1971, was not unanimous. Rolph Huband, Company Secretary, recalls that ”in my thirty years of attending Board and Canadian Committee meetings, almost all decisions have been by consensus with no opposition, but a vote was taken on both Bloor and Yonge and on the Freiman purchase, with three directors voting against in each case.”
MCGIVERIN'S RUN 471.
move to be near his ma.s.sive investment, and that in turn meant the end of Winnipeg as the Company's operational head office.
Completion of the giant Toronto unit was celebrated to the rocking cadence of the Grease Ball Boogie Band on August 1, 1974. At the official opening a week later, so many customers Jammed in to inspect the first downtown department store opened in the Ontario capital in forty-four years that after two hours the doors had to be shut and escalators closed down.*
McGlverin subsequently expanded the Company's national activities by purchasing the 30,000 credit-card accounts of Montreal's bankrupt department store Dupuis Fr6res, creating an 11BC travel agency, establis.h.i.+ng a sixty-three-outlet catalogue-store operation under the Shop-Rite banner, and acquiring 35 percent of Eaton's life insurance and mutual ftind marketing agency, renamed Eaton Bay Financial Services Limited. But the most interesting non-retail diversification was the deal in 1973 with Siebens Oil & Gas.
Through a subsidiary, the Company still held mineral rights on 4.5 million prairie acres; but depletion allowances had run out, and McGiverin decided on a potentially more profitable-though much more riskyinvestment. It involved turning the HBCs rights income over to Slebens, a company then active in North Sea exploration, in return for 3.2 million Siebens shares (35 percent of the total), mainly to come from its treasury. A brainchild of Don Mackenzie, a savvy Calgary oil
*The HBC honoured the launch by promising to donate three black beavers to the Metropolitan 16ronto Zoo. But the Company's trappers had done such a thorough job that none of the subspecies could be found in Canadas backwoods. Three ammals were finally located at a breeding ranch near Salt Lake City, Utah. They were purchased for $2 00 and s.h.i.+pped north.
472 MERCHANT PRINCES.
consultant,~Nho had joined the FIBC board a year earlier, the deal caught investors' imaginations because it gave The Bay, which had money but few proven oil reserves, the chance to share in a big potential strike, and it gave Siehens, which had potential oilfields but little money more cash for exploration.
Not long afterwards, McGiverin purchased control of Markborough Properties, which owned a real-estate portfolio worth at least $100 nil Ilion. In a dramatic lastminute struggle with Robert Campeau, McGiverin outbid the developer from Sudbury mainly because hysterical Markborough shareholders wanted anybody but Campeau to buy their company. They kept The Bay in the bidding and stormed Royal Trust offices five minutes before closing to get back the stock they had already pledged to the swashbuckling financier.
Ironically, McGiverin, whose hiring as a first-rate retailer had been a condition of the U.K. directors for transferring the Company to Canada, was soon spending most of his time on corporate affairs, acquisitions and strategy, while Ronald Sheen, an uninspired executive who had been bypa.s.sed for McGiverin in 1969, ran The Bay department stores t hrough most of the 1970s. By the spring of 1978, McGiverin had gathered around him a top-flight takeover team of financial experts including Peter Wood, John McIntyre, lain Ronald, Donald Wood, Rolph Huband, Peter n.o.bbs and Douglas Mahaffy, while Marvin Tiller, aided by George Whitman, provided locomotion for the Northern Stores Div]sion. McGiverin himself, usually jacketless, feet up on his desk and incessantly puffing on Camel cigarettes, had grown into the job, running the Company with good humour but little charisma.
Dependent more on logic than emotion, he conducted the business not so much by issuing orders as by making suggestions-and repeating them if they weren't followed up. Irish in manner rather MCGIVERIN'S RUN 473.
than Scottish- outgoing and breezy, not introspective and gloomy-he liked to pretend that he was really a small-town boy, hitching his pants up towards his armpits, telling stories with a grin on his lived-in face and rhapsodizing about the weekends he spent ”getting a little plastered” at his ”hut in a swamp” at Palgrave, Ontario. (He actually lived in a luxury apartment in the Manulife Centre in Toronto's upscale Bloor and Bay retailing district, and much preferred spending weekends at the Lyford Cay resort in Na.s.sau, where he had a house.) One of his few eccentricities was that he never sold any of his cars, which he considered old friends. He still had his first purchase, a 1930 Ford coupe, but mostly drove his 1963 Falcon, his 1962 Cadillac convertible or the 1972 Lincoln-bought to celebrate his appointment as the HBCs president. He never got caught up in the Company's history except as a source for after-dinner anecdotes, and stoutly maintained that ”you don't make money by reflecting on a glorious past.... There are no inuskrat traps hanging from the rafters any more.”
THE YEAR OF THE BIG CHANGE WAS 1978. McGiverin's acquisitive impulses reached their crescendo as, in a series of stunning corporate coups, he more than doubled the Company's revenues-as well as its longterm debt.
There were a few disposals: the sale of a minority interest in Glenlivet Distillers of Scotland to Seagrams for $6 million, realizing $4.4 million in profit; sale of the HBC's 3 5 -percent interest in Siebens Oil & Gas to Dome Petroleum at $38.50 a share, generating a $94-million gain for a five-year hold, though the dream of striking it rich in the North Sea never materialized.
In early June, word came through from George Richardson's Vancouver office that Joe Segal, chairman 474 MERCHANT PRINCES.
of Zellers Limited, which operated cut-rate department stores, wanted to discuss some new merchandising concepts with McGiverin. When the two men met, Segal came right to the point: his great merchandising idea was to buy the Hudson's Bay Company. He proposed purchasing 51 percent of the issued shares at $28, about $7 over current market, though part of the value would be in Zellers shares. An astonished McGaverin replied that any offer would have to be for 100 percent, and ail cash. Shortly afterwards,jim Pitblado, chairman of Dominion Securities, the country's largest brokerage house, phoned McGiverin to inform him that Dominion Securities would be acting for Segal, but only if it was a friendly takeover. Then came the kicker: Segal informed McGiverin that he had consulted his a.s.sociates and that a 100-percent, all-cash offer was on its way. Segal matter-of-factly confirmed that he had the necessary funds ($450 million), and agreed to meet McGiverin in Winmpeg on July 7 to complete the takeover.
The Company of Adventurers went ape. Flying to that meeting (aboard the Company's new HS-125-400 $2-million jet), McGiverin and his advisers hurriedly pored over intelligence reports they had gathered about Segal.
Born in Vegreville, Alberta, he had dropped out of school at fifteen to work in the Credit Arcade clothing store in Edmonton (”a quarter down and a quarter a week”), was a labourer (luring construction of the Alaska Highway, then lost his entire savings in an all-night poker game. After two years in the army, he was demobbed in Vancouver and launched a small army and navy surplus outlet, starting with some naval exhaust fans built to operate through portholes. He sold them off to tailor shops willing to have round exhaust holes cut in their store fronts. Subsequently he opened a clothing outlet called Fields near Woodward's main store. That was the beginning of a highly successful western chain MCGIVERIN'S RUN 475.
that later included a hardware operation (Marshall Wells). Ile eventually used his Fields holdings for a reverse takeover of Zellers, a Canadian variety chain that had been sold in the 1950s to WT. Grant, a U.S. mar- keting giant. At the time, Canada's business Establishmerit thought so little of Segal that the news of his takeover pushed down Zellers' already depressed stock $2.00 to a new low of $2.50. But within two years, Zellers was in fine shape and Segal was wealthy enough to purchase Vancouver's most beautiful house.*
Before he left Toronto for the Winnipeg meeting, McGiverin had tried to find out who was backing Segal and soon traced the Bank of Montreal as the most likely suspect. 'vNhen he got Fred McNeil, the Montreal's chairman, on the telephone, nearly everything McGiverin asked was met with stone-cold silence.
Finally the HBC president demanded, ”May I a.s.sume that your bank is behind this takeover bid?”
”If I were in your position,” McNeil replied, ”that is the a.s.sumption I would make. But I didn't say it.”
The Winnipeg meeting began warily. McGiverin and his advisers had concluded that only one move would defuse Segal's takeover strategy: a pre-emptive bI d for Zellers.
”I recognized the Hudsons Bay Company as a sleeping giant with a tremendous, understated balance sheet,” Segal later recalled. ”The Company would have been the
Rio Vista, his palace at 2170 Southwest Marine Drive (sold to a Singapore billionaire in 1990), had its own terraced Italian garden, waterfall, tranquillity ponds and galleried conservatorv where he grew grapefruit-sized lemons and melon-sized grapefruit. The mansion itself had ten fireplaces, eleven bathrooms, a sunken ballroom, a full-sized tavern with suede walls, not to mention a banquet-sized dining chamber, a billiards room decorated in tartan, a fidl-scale spa and so on-all done up in a mongrel mixture of elegance and Disneyland.
476 MERCHANT PRINCES.
joe Segal, princ.i.p.al HBC sbarebolderfor a time
greatest leveraged buyout in history. Its breakup value was huge, except that I wouldn't have broken it up but would have maximized the value of its a.s.sets-and that meant merging it with Zellers to create the largest retailing ent.i.ty in Canada. I didn't particularly care which of the two companies emerged on top, as long as it was done.”