Company History

Introduction

The story of Power Corporation of Canada is one of remarkable leadership, extraordinary people, and steady, sometimes spectacular growth. It is also a story intricately bound with the economic, political and social history of Canada, through good times and bad.

An important and highly respected contributor to the development of the country, Power Corporation evolved from a Canadian utility company into the diverse, multibillion-dollar management and holding company that today spans the world.

The Foundation

(1925–1950)

Power Corporation of Canada was founded on April 18, 1925, by A.J. Nesbitt and P.A. Thomson, principal partners in the Montreal investment firm Nesbitt, Thomson and Company. Their firm had begun underwriting and investing in the construction and promotion of Canadian hydroelectric utilities almost immediately after its own founding in 1912.

Rejecting the offers of a reckless Chicago speculator who was buying up utility companies across the United States, Nesbitt, Thomson instead chose to defend and strengthen Canada’s power sector through consolidation. To that end, it established a public holding company—simply, but appropriately, named “Power Corporation of Canada”—that would profit from the growing demand for industrial and domestic electricity across the country, offer expert management advice to its operating affiliates, and provide technical services through a construction and engineering department. A dual-class share structure was used to ensure that control remained in Canada.

By 1930 Power Corporation’s affiliated companies were operating 40 power plants across the country and serving more than 1.5 million Canadians. As the Corporation’s annual net earnings soared, its common shares jumped from $5.00 a share in 1925 to a high of $139.75 in 1929.

The Great Crash and the Depression years took their toll, of course. Yet by concentrating its attention and resources on its Canadian affiliates, Power Corporation was able to remain profitable during the 1930s. Consequently it emerged in a strong position to benefit from the industrial expansion that took place following the Second World War.

The Transformation

(1950–1967)

During the 1950s, Power Corporation continued to take minority positions in power companies across Canada. Most importantly, it bought shares in Shawinigan Water and Power, one of the largest privately owned hydroelectric producers in the world, with massive installations in Québec. Meanwhile, its successful engineering and construction divisions were engaged in designing and building innovative power projects from British Columbia to Newfoundland.

The 1960s brought dramatic change. It was forced on Power Corporation when provincial governments in Canada pushed ahead to nationalize the hydroelectric industry as an essential public service. Between 1962 and 1964, in fact, more than 80% of the value of the Corporation’s portfolio was liquidated.

Now in the hands of the founders’ sons, A. Deane Nesbitt and Peter N. Thomson, Power Corporation needed a new strategy. Instead of investing in a wide range of companies over which the holding company had little control or influence, the Corporation used its extraordinary cash position to purchase larger interests in fewer, more diversified companies in energy, finance, industry, and real estate.

The number of companies making up over 90% of Power Corporation’s portfolio dropped from 31 in 1962 to 18 just three years later. At the same time, in order to protect and nurture those investments, the Corporation sought a more active role in monitoring their management and direction.

New Controlling Shareholder

(1968–1980)

Early in 1968, the leadership of Power Corporation passed from the founding shareholders to financier Paul Desmarais. Born in Sudbury, Ontario, Mr. Desmarais turned around his family’s ailing bus service as a young man, bought Provincial Transport and Imperial Life Assurance, and expanded into a broad array of investments through Trans-Canada Corporation Fund (TCCF), a Montreal-based holding company. He gained control of Power Corporation following a share-exchange offer with TCCF.

Paul Desmarais’ strategy was to increase Power Corporation’s cash flow; to consolidate its control over a limited number of large, diversified, long-term holdings; and to concentrate on improving their performance. By 1971, two thirds of the Corporation’s assets were in operating subsidiaries, as opposed to less than 40% in 1968.

Among the major assets were Canada Steamship Lines (transportation); Consolidated-Bathurst (pulp and paper); Investors Group, Great-West Life, and Montreal Trust (financial services); and Gesca (communications).

Power Corporation was only part way through its successful reinvention when recession, stagflation, and two oil shocks buffeted the North American economy. Though many of the Corporation’s holdings were beset by difficulties during the 1970s, Power Corporation was able to maintain its profitability and growth thanks to the experience of its directors, the talent of its group company managers, the dedication of the group’s employees, and the strategic leadership of the major shareholder.

Restructuring and Expansion

(1981–1988)

The early 1980s proved a challenging period for Canadian business. Inflation returned, interest rates soared toward 20%, and the prospects for economic recovery were far from certain. Despite its solid earnings and profits, Power Corporation decided it would be prudent to restructure its capital base and lower its long-term debt.

In July 1981, it sold its wholly owned CSL Group, which included Canada Steamship Lines and the bus services that had launched Paul Desmarais’ business career.

In April 1984, in conjunction with its ambition of creating an integrated financial services group, Power Corporation transferred its holdings in Investors Group, Great-West Life, and Montreal Trust to a new subsidiary, Power Financial Corporation, which went public a year later. Another series of transactions in 1984 and 1985 resulted in the complete elimination of Power Corporation’s long-term debt.

In January 1989, Power Corporation received an unsolicited offer from Stone Container Acquisition Corporation for its shares of Consolidated-Bathurst. The attractive offer, two and a half times book value, coincided with the Corporation’s concerns about the future of the pulp and paper industry.

Two months later, in March 1989, BCE Inc., the parent company of Bell Canada, sought to purchase Power Financial’s shares of Montreal Trust. The offer was accepted, largely because of Power Financial’s reservations about the ability of mid-sized deposit-takers to compete successfully with Canada’s chartered banks.

Robert Gratton, who had led Montreal Trust through seven years of substantial growth and significant financial improvement, subsequently joined Power Financial and became its CEO in 1990.

Europe

(1990–2000)

Coincident with the advent of liberalized trade and the new global economy, Power Corporation entered the 1990s cash-rich and debt-free. But while the Corporation was more than prepared to seize new opportunities, it was in no rush to do so while economic conditions remained unsettled.

In Europe, the Corporation continued to build upon the investment it had made in 1981 in Pargesa Holding SA, a Swiss firm. When Pargesa acquired the non-French assets of Compagnie Financière de Paris et des Pays-Bas (commonly known as Paribas) just before the government of France moved to nationalize the French banking organization, Power Corporation bought control of the holding company in alliance with several partners, including Belgian entrepreneur Albert Frère.

Under the joint leadership of Power Financial and the Frère group, Pargesa’s European strategy in the 1990s mirrored Power Corporation’s Canadian strategy 20 years earlier. It sought to increase its equity in a small number of high-quality, diversified companies positioned to become global leaders in their respective markets; to put them in the hands of capable managers; and to strengthen their balance sheets for future growth.

In the industrial sector Pargesa gained majority control of Imétal (later renamed Imerys S.A.), the minerals and construction materials group headquartered in France.

In the energy sector, Pargesa emerged in 1999 as the largest shareholder of Totalfina Elf, the fourth largest integrated petroleum company in the world.

In the communications sector, Pargesa took indirect control of Compagnie Luxembourgeoise de Télédiffusion, which later merged with the broadcasting subsidiaries of the German group Bertelsmann to form Europe’s largest radio and television group.

And in the utilities sector, Pargesa secured a major stake in Suez Lyonnaise des Eaux, which focused on energy, water, waste management, and communications, with some 185,000 employees in more than 120 countries.

At Home and Abroad

(1990–1995)

Europe wasn’t Power Corporation’s only area of expansion. Great-West Life’s wholly owned subsidiary Great-West Life & Annuity Insurance Company emerged as a leader in the fields of employee benefits and retirement products in the United States. In Canada, meanwhile, Great-West Life and Investors Group respectively became the largest companies in life and health insurance and mutual fund distribution.

On the other side of the world, Power Corporation worked at solidifying the special, ongoing relationship with the government of China that had begun in the late 1970s. Power Corporation’s joint venture to buy a pulp mill in British Columbia in 1986 with the Canadian subsidiary of China International Trust and Investment Corporation (CITIC), the international investment arm of the People’s Republic of China, marked CITIC’s largest investment outside China at the time. Though Power Corporation sold its interest in the mill in 1992, it continued to develop investment opportunities with CITIC and other entities in Asia.

Power Pacific Corporation, created for that purpose, opened offices in Hong Kong in 1994 and Beijing in 1998. It soon joined with CITIC in the development of industrial real estate in the special economic zone of Pudong, outside of Shanghai, and participated with Canadian and Chinese partners in the manufacture of passenger rail cars in China. More significantly, Power Corporation acquired an equity interest in CITIC’s publicly traded conglomerate CITIC Pacific Limited, a diversified holding company based in Hong Kong, with interests in power generation, transportation, communications, and real estate.

Management Changes

(1996–2000)

On May 10, 1996, Paul Desmarais formally stepped aside as Chairman and CEO of Power Corporation. While Mr. Desmarais continued to be Chairman of the Executive Committee and the controlling shareholder, his sons Paul Jr. and André respectively became Power Corporation’s Chairman and President and Co-Chief Executive Officers.

After reaping a sizeable profit from the sale of its minority investment in Southam Inc., Canada’s largest newspaper publisher, the Corporation purchased and cancelled 17 million of its shares held by Paribas, an anti-dilutive move that resulted in a 13.5% reduction in the number of outstanding participating shares.

Then, in the second half of 1997, Power Financial and Investors Group supported Great-West Lifeco in its bid to buy 100% of London Insurance Group, which in turn owned almost all of London Life Insurance. The subsequent merger made Great-West Lifeco the largest life and health insurance company in the country.

Great-West Life & Annuity expanded its market position in the United States in 1998 and 1999 by acquiring the group health businesses of Anthem Health & Life Insurance Company, Allmerica Financial Corporation, and General American Life Insurance Company. It thereby became the eighth-largest publicly owned managed-care company in the United States.

Led by Paul Jr. and André Desmarais, these transactions, among many others, drove the operating earnings and dividends of Power Corporation and Power Financial to record levels by the end of the century. Besides paving the way for continued growth, they demonstrated that Power Corporation had passed smoothly into the hands of a new generation of dynamic business leaders at the group’s holding and operating companies.

Global Challenges

(2001–2011)

The next ten years marked a decade of improved earnings, only interrupted by the sudden financial crisis that rocked the global economy in 2008. The Corporation’s strategy remained consistent: to invest in a limited number of companies with the potential, over time, to develop dominant positions within their industries; to work with strong management teams toward sustainable earnings, profitable growth, and shareholder value; and to make sure that Power Corporation and its group companies maintain healthy balance sheets with which to ride out slower economic periods or seize new opportunities.

Great-West Lifeco bought Canada Life Financial in 2003; acquired Putnam Investments, the Boston-based asset management business, in 2007; and in 2008 sold off its U.S. healthcare unit, which could not provide the scale required for long-term success.

Investors Group (subsequently merged into IGM Financial) strengthened its position as Canada’s largest mutual fund organization by acquiring Mackenzie Financial in 2001 and a 75% interest in Investment Planning Counsel in 2004.

In Europe, Pargesa made new investments in Lafarge, a world leader in building materials, in 2006 and in Pernod Ricard, a global co-leader in wines and spirits, in 2007, while selling its position in Bertelsmann that same year.

Gesca, which owned La Presse in Montréal, acquired another six daily newspapers in Québec in 2001, creating Canada’s leading French-language newspaper group. It also developed Cyberpresse (now lapresse.ca), a French-language news and information website.

In Asia, in addition to its stake in CITIC Pacific, Power Corporation became the first Canadian company to be granted a QFII (Qualified Foreign Institutional Investor) licence, which allowed it to invest directly in Chinese public companies. And, in Europe and the United States, it established portfolios of private equity and venture capital investments.

Power Today

Power Corporation’s business model has served it well through the economic turbulence. The Corporation’s financial services companies enjoy sound fundamentals, are managed in a conservative fashion, have competitive and strategic distribution channels, offer value-added products, and operate with low cost structures. Not only did they generate solid operating earnings, maintain dividends, and keep their credit ratings during the 2008 economic crisis, they have been able to raise capital and leverage their strength to gain market share. At the same time, the Corporation’s other investments are diversified, have a foundation in deep and long-term relationships, and produce solid returns. As a result, Power Corporation is well positioned to address and capitalize on the challenges ahead.