Board pay probe hits Hollinger

DAILY Telegraph publisher Hollinger International is embroiled in a new crisis after admitting that spiralling costs related to an investigation over executive payments would hit full-year profits.

The Chicago-based newspaper publisher said in a regulatory filing in the US that it faced legal costs of up to US$8m(£5m) to fund an investigation into allegations of mismanagement.

Group full-year operating profit is expected to fall to between $54m and $62m from previous estimates as high as $75m.

Hollinger is under fire from key institutional shareholders, including fund manager Tweedy Browne which owns more than 13m shares, over its ownership structure and executive compensation.

A special committee of independent directors has been looking into allegations made by Tweedy Browne in June over the way business contracts were handled between group holding companies. It follows a complaint from shareholder Cardinal Capital Management about the way Hollinger paid its executives.

It was revealed this week that Hollinger's chairman and chief executive, Lord Black, used $8m of company funds to buy thousands of historical documents related to former US President Franklin D Roosevelt. Black is the author of a forthcoming biography of Roosevelt.

Hollinger International, a subsidiary of Toronto-based Hollinger Inc, has told the US Securities and Exchange Commission it paid $8.5m in stock options to directors of Ravelston Corp in the six months to 30 June. Ravelston, Black's private holding company, provides management services to Hollinger.

Tweedy Browne has demanded to see many of the documents the special committee has unearthed in the past two months. It has also asked to see the company's books and records, including agreements between Hollinger and Ravelston. It also wants to see all documents relating to the terms of employment of Black, Hollinger president David Radler and six other Ravelston principals.

Hollinger returned to the black in the second quarter with a profit of $23.5m against a $3m loss in the same period a year ago. Operating revenue rose to $264.4m from $250.8m in the quarter while operating income rose to $18.5m from $17.2m.

Hollinger International's US-listed shares stand at US$12.09. and Hollinger Inc's at C$3.65.

Life under Lord Black

1985: Black acquired 14% of loss-making Daily Telegraph.

1986: Became majority shareholder in Daily Telegraph and appointed chairman.

1986-1991: Cuts Daily Telegraph staff by 75% with annual profits of £62m in 1991.

May 1994: Hollinger International shares issued at $13.

1998: Loss making National Post launched in Canada.

2000: Sells bulk of Canadian newspaper business and 50% stake in the National Post for £1.4bn.

2001: Made a peer after renouncing Canadian citizenship.

2000-2002: Hollinger International losses total $417m (£262m).