Edper Investments


Edper Investments Ltd. was the primary holding company and investment vehicle for brothers Edward Bronfman and Peter Bronfman between 1959 and 1995. At its peak in the 1980s, and early 1990s, Edper was one of the largest corporate conglomerates in Canada, controlling more than 500 private and publicly traded companies in a complex structure that was estimated to be worth $100 billion, employed more than 100,000 Canadians, and comprised 15% of the total capitalization of the Toronto Stock Exchange.
Edper, whose name is an amalgam of the names of the two Toronto-based brothers, was initially financed with proceeds from their interests in the Seagram Company Ltd. The main investments of their cousins in the Montreal-based branch were managed through their own holding company, Cemp Investments.

History

Edper was established in 1959 with approximately US$15 million in proceeds from the half of their shares in Seagrams they were forced to sell by the Montreal branch of the family, who retained control. Over the following four decades, Edper grew from a family holding of shares in a single company to a vast conglomerate with a reputation for corporate takeovers in some of Canada's largest companies. Below is an outline timeline:
  • 1954: Edper Holdings established as a trust for brothers Edward and Peter.
  • 1959: Edper Investments Ltd.is established.
  • 1989: Edper Investments Ltd. is renamed Edper Enterprises and makes its first public offering.
  • 1989-95: The Bronfmans divest themselves of all holdings of Edper.
  • 1995: The Pagurian Corporation approved changing its name to The Edper Group Limited.
  • 1996: Hees International Bancorp Inc. and The Edper Group Limited amalgamated to form The Edper Group Limited
  • 1997: The Edper Group Ltd. and Brascan Ltd. amalgamated to form EdperBrascan Corporation
  • 2000: EdperBrascan Corporation changed its name to Brascan Corporation
  • 2005: Brascan Corporation changed its name to Brookfield Asset Management Inc..

    Structure

The ownership of Edper Investments Ltd. was held by the personal trusts of brothers Edward and Peter. Its structure changed after 1989, but for most of its existence it was owned by the private trusts of each brother. The Edper corporate empire was noted for its intricate web of ownership and control that extended from the top tier. Its organizational structure was described as "very, very complex" and "dizzying" Through careful use of labyrinthine accounting and complex strategies and corporate structures, Edper capitalized on Canada's relatively lax securities laws, tax laws, and disclosure requirements that resulted in its rapid growth into a highly complex, pyramidal empire of interwoven companies and cross-ownership. Edper controlled but did not own many companies. Privately held Edper could own a controlling stake in one public company that would hold a controlling stake in another public one that would hold a controlling stake in yet another, without having to use much of its own money. Other strategies used were cross-ownership and partial ownership of a parent company by its subsidiary and the liberal use of restricted or non-voting shares for public investors and super-voting shares for insiders. These enabled the Edper empire to raise billions of dollars without having to use much of its own money. During the Eighties boom, Bronfman-connected companies issued more securities than anyone else in Canada and raised more than $30-billion in equity. In addition to the two brothers, who were heavily involved in the management of Edper and many of its subsidiaries, there were two other men who played key roles in the Edper group's rapid expansion and management: accountant Jack Cockwell hired by the Bronfmans in the 1960s who later headed Hees International/Bancorp, Edper Equities, and Edper Investments; and Trevor Eyton, a corporate lawyer who headed Brascan Ltd. following Edper's acquisition.

Debt and collapse

After its peak in 1989, several factors combined to cause a near-collapse of Edper's empire in the early 1990s: a major economic recession, the Olympia and York collapse, a meltdown in commercial real estate that affected both revenue and valuation of key assets, increased scrutiny of leveraged financing and complex ownership structures.
For revenue, the Edper corporate structure relied heavily on dividend payouts from subsidiaries to their parent companies to cover debt obligations. It was estimated their pay-out ratio was half again as large as the average of the top 35 companies on the Toronto Stock Exchange. Some Bronfman companies paid out more in dividends than they registered in earnings. To cover their cascading losses in 1991-93, the Edper companies raised more than $9-billion through share issues, asset sales and debt financing in just 20 months. By early 1993, Edper began selling assets, notably $1.96 billion worth in February alone. Edper's market capitalization decreased 90% between 1989 and 1993.

Transition

In order to provide Edward with a way to extract himself from the companies while allowing Peter to remain in control, Edper Enterprises was created as the new main holding company for the group and in 1989 issued shares to the public. Majority ownership was retained by Edper Holdings, which by then was owned 50.1% by Edper Investments and 49.9% by Pagurian Corporation, which was in turn was controlled by a group led by Jack Cockwell. By careful use of structured partnerships with Peter Bronfman and control of cash flow, Jack Cockwell in effect took over Edper.

Major holdings

Edper had direct and indirect ownership interests in numerous companies. Below is a list of the largest and most significant to its corporate empire.

Carena Bancorp

In 1971, the Canadian Arena Company was purchased for $15 million from the Molson family by Placements Rondelle Ltée,, a consortium of owners led by the Bronfman brothers. Carena was the owner of the National Hockey League Montreal Canadiens and the manager of the Montreal Forum. In 1978, the Canadiens team was sold to Molson Breweries for $20 million.
Under Bronfman ownership Carena expanded its property development holdings, including Trizec Corporation. In 1978, Carena Bancorp Holdings Inc. was formed, it later became Carena Developments Ltd., and in 1996 Brookfield Properties. After acquiring Trizec, Carena expanded its real estate holdings aggressively.
In 1989, Carena acquired one-third of Olympia & York's World Financial Property, L.P., owner of New York City's World Financial Center adjacent to the World Trade Center but was struggling under heavy debt and collapsing office market. With Edper's financial backing, Carena expanded during the recession of the early 1990s. O&Y collapsed in 1992, and four years later the slimmed-down company emerged from bankruptcy with Carena owning a 47% stake.

Trizec

In 1970, the Bronfman brothers were brought onto the board of Toronto-based Trizec Corporation Ltd., one of Canada's largest property developers, and given a 9% equity stake. Trizec had been formed to build Montreal's iconic Place Ville Marie and later acquired control of the development arm of BCE Inc., owner of BCE Place and property valued at billions of dollars. In 1976, Carena acquired a 25% equity interest and effective voting control of Trizec; the holding was increased to 50.1% later in the 1970s.
After the Canada created the Foreign Investment Review Agency in 1974 to regulate foreign investment, concerns arose about the ability to raise future investment money for a foreign-owned company. In 1975, an agreement was reached with Edper that would leave Eagle Star with a controlling interest in Trizec, while effective control would move to a new Brofman-controlled holding company, Carena Properties. By 1976, the Bronfmans took control of Trizec and moved the head office to Calgary. By 1979, Trizec's assets surpassed $1 billion in value. That same year a bidding war developed for UK-based English Property between Olympia & York, Dutch real estate company NV Beleggingsmaatschppij Wereldhave, and Eagle Star Insurance. Concerned about securing their ownership in Trizec, the Bronfmans came to an agreement with Olympia & York's Reichmann brothers to avoid future competition between their property development concerns, Canada's two largest. Transactions were then undertaken that resulted in both Edper and O&Y having an equal 37% stake in Trizec. In 1980, Trizec acquired the US-based Ernest W. Hahn Inc.'s shopping center interests, raising Trizec's assets to $2 billion, and Trizec was renamed TrizecHahn. Two years later Trizec's assets were valued at $4 billion. By 1990, the recession in commercial real estate became acute and both TrizecHahn and Olympia and York struggled with debt. Following outside infusion of capital into Trizec in 1994, Edper's stake was reduced to a nominal amount.
* Bramalea: In 1984, Trizec acquired an initial 18% ownership stake in its rival, Toronto-based Bramalea Ltd., for $160 million. Bramalea held more than 20 million square feet of commercial, retail, and industrial real estate across North America. It was a residential community developer and builder, and had oil and gas interests through Coseka Resources Ltd. In 1986, Trizec and Bramalea combined their retail assets into a new entity, Trilea Centres, which eventually owned and operated 28 shopping centers across Canada, and Trizec increased its ownership in Bramalea to 61%. By 1990, Bramalea had taken on $5 billion debt used for acquisitions and expansion in Canada and the United States. The recession of the early 1990s, forced it to sell many assets at reduced prices and it defaulted on its loans in 1992. Carena Developments Ltd, which owned 40% of Trizec, injected more capital. In December 1992, Bramalea voluntarily filed for bankruptcy protection with $3.8 billion in debts. In April 1995, Bramalea went bankrupt; in May 1995, its US subsidiary, Newport Beach CA-based Bramalea of California Inc., closed in the largest collapse of a housing developer in US history.
* BCE Development Corporation: In 1989, Trizec subsidiary Brookfield Properties acquired 50% of major properties from Toronto-based BCE Development, one of Canada's largest commercial property developers The company began as Dawson Developments Ltd. in 1964, then Daon Development Corporation from 1973, was purchased by BCE Inc. in 1986. It was renamed Brookfield Development in 1990 and BF Realty Holdings Limited in 1991.