June 28, 2012
To steer the foreign acquisition of Kobo through the uncertain waters of a Canadian Heritage review, Heather Reisman turned to another adviser in her inner cabinet. Rob Prichard, former University of Toronto president, former Torstar CEO and a corporate Mr. Fix-It as the chairman of Torys, has been a close friend of Gerry Schwartz and Reisman's for decades. Canadian Heritage typically can take months to complete a review of a foreign takeover to ensure the deal meets the test of being in Canada's best interests. Kobo, however, was so short of cash, that Schwartz says he was "desperately worried that we couldn't get approval fast enough."
It took several meetings with senior Heritage Canada and Industry Canada officials for Prichard and Torys partner Omar Wakil to argue that the sale of a made-in-Canada book reader, technically a protected cultural business, was good for the country. Under the 1985 Baie Comeau policy, Canada requires Canadian book publishers and sellers to be majority-owned by domestic investors. The growth of online sales and digital readers, as well as industry financial woes, had prompted Ottawa to announce in 2010 that it was reviewing the policy. Prichard seized upon the review as an opportunity for the Kobo deal. His first argument was that Kobo was such a drain on Indigo's finances that the bookseller would likely have to keep selling off what had been reduced to a 51% stake to keep raising cash. At least with Rakuten, Prichard argued, Kobo would have an owner willing to keep its head office in Toronto, retain Serbinis as CEO and give him a budget to more than double his Canadian staff.
Prichard's second line of argument was to assert that the $315-million deal "would make Indigo stronger," he says. At a time when bookstores were collapsing or shrinking around the globe, he said, the Kobo deal would infuse nearly $165 million of cash into a national retailer that was transforming its business to survive the digital shifts toward e-readers. Just 31 days after the review started, on Dec. 15, Heritage Canada approved the sale.
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