Brascan Corporation

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Brascan Corporation

BCE Place, Suite 300
181 Bay Street
Toronto, Ontario M5J 2T3
Canada
Telephone: (416) 363-9491
Fax: (416) 363-2856
Web site: http://www.brascancorp.com

Public Company
Incorporated: 1912 as Brazilian Traction, Light and Power Company Limited
Employees: 6,000
Operating Revenues: $3.37 billion (2003)
Stock Exchanges: New York Toronto
Ticker Symbols: BNN; BNNa
NAIC: 531210 Office of Real Estate Agents and Brokers; 213114 Support Activities for Metal Mining; 322121 Paper Mills (Except Newsprint, Uncoated Groundwood Paper Mills)

Brascan Corporation is working on an image change, from being known as one of Canada's largest conglomerates to a tightly focused company more appealing to investors. The company's core businesses are real estate and power generation. In addition to billions in direct investments, Brascan is growing its portfolio of assets under management. Hard assets include over 70 office properties in North America and the United Kingdom and more than 100 power generation plants, mainly in the Northeast.

From South to North: 1899–1979

Brascan Corporation can be traced back to the dawn of the 20th century and South America, where Canadians played a role in the early development of hydroelectric power generation, street car lines, and gas and telephone systems. The power business came first, beginning in 1899. The Brazilian Traction, Light and Power Company Limited, formed in 1912, amalgamated infrastructure operations in Sao Paulo and Rio de Janeiro.

The company's northern hemisphere roots were established as the second half of the century was getting underway. Edper Investments Limited, incorporated in Montreal in 1954, was owned by Peter, Edward, and Mildred Mona Bronfman trusts. From 1954 to 1968, Edper involved itself in real estate, financial, and industrial ventures.

Edward and Peter Bronfman, nephews of Samuel Bronfman, the builder of Seagram Co. Ltd., became known for the dizzying array of companies they amassed under one or another holding company. "It really was a very, very complex organization," Desjardins Securities analyst Michael Goldberg told the Financial Post in 2003.

Brazilian Traction, Light and Power Company, meanwhile, sold off its telephone operations to the Brazilian government. The company was renamed Brascan. A decade later, in 1979, the power business, too, was sold to the government, and Edper acquired controlling interest in Brascan. North America became the central focus for investment in the power industry. In 1973, Brascan had acquired Great Lakes Power Company and its hydroelectric facilities. The independent company had been incorporated in the early 1920s to provide power in northern Ontario.

A Complicated Design: 1980s–90s

Merchant bank Hees International Bankcorp served "as the nerve centre for Brascan in its glory days in the late 1980s," wrote Deirdre McMurdy for Canadian Business in 2002. For two decades, South African-born Jack Cockwell had led the charge, investing Bronfman money in dozens of publicly traded firms, gaining significant or controlling interest.

Distiller John Labatt Ltd., forest products giant MacMillan Bloedel, financial concern Royal Trustco, mining company Noranda, and real estate broker Royal LePage represented the diverse interests held by the Bronfmans. According to Maclean's, in 1989 the Bronfman empire consisted of more than 150 companies, with assets worth about $120 billion and 100,000 employees. That year the company announced a restructuring to decrease family ownership, offer shares to the public, and open the door for greater management control.

The fortunes of Hees, Brascan, and Cockwell soured with the economy in the early 1990s. The North American recession particularly hurt core business segments real estate and natural resources. Hees International Bancorp Inc. and Brascan Ltd., both publicly traded holding companies, felt the strain.

In February 1993, the Edper group sold off a pair of assets with a combined value of $1.96 billion. McMurdy wrote for Maclean's, "Indeed, the sale of MacMillan Bloedel and Labatt by the Toronto-based Hees-Edper corporate empire clearly marks the end of an era. After more than a decade as the most dominant and acquisitive force in the Canadian economy, the Edper group is literally losing control. The Bronfman family and its senior managers have come under mounting pressure and scrutiny from bankers, regulators and disgruntled minority shareholders to address the financial leverage of their complex structure. By selling assets, the group has made a clear attempt to raise capital, reducing both debt and uncertainty."

The rise of another company helped turn the tide for Brascan. Canadian Arena Company (Carena) was incorporated in 1923 to own and manage the Montreal Forum and the Canadiens hockey team. During the mid-1970s, Carena bought a 50.1 percent stake in Toronto developer Trizec, gaining control of BCE Developments and billions in property. Those considerable assets eventually found their way into Brookfield Properties Inc., the BCED subsidiary that built BEC Place in Toronto, according to Canadian Business. At that time, Edper became the major shareholder.

Brookfield gained a foothold in New York City, through a stake in the World Financial Center owned by the unraveling Olympia & York. Bruce Flatt, the son of the cofounder of a giant Canadian-based mutual fund, built an impressive portfolio of properties.

In 1997 the Edper Group Limited and Brascan Limited amalgamated to form EdperBrascan Corporation.

A Change in the Wind: 2000–04

As the new century began EdperBrascan took a new name, Brascan Corporation, but its future was uncertain. Conglomerates were on their way to extinction and investors were cheering on their demise. "In general, the market does not like the idea of conglomerates. It consistently values them at a substantial discount to asset values, a penalty imposed because of the extra corporate layer between the investor and operating companies," explained Dan Westell in Canadian Business. The massive companies countered by maintaining that their complexity gave them the advantage during tough times.

The planned breakup of Canadian Pacific Ltd. drove up Brascan's share price in 2001, as investors anticipated split-offs by three remaining Canadian conglomerates. Internal moves, including improvements in operations and capital investments and continued simplification of the corporate structure, were expected to fare well with investors even if no restructuring was in the immediate future. In addition, a New York Stock Exchange listing beginning in late 2000 brought the company to the attention of American investors.

Bruce Flatt, president and CEO of Brookfield Properties Corp., took over the post of president and CEO of Brascan Corporation in 2002, succeeding Jack Cockwell, who had tapped him as his successor. Flatt's operating results at Brookfield led him to his advancement to the head of Brascan. But it was his performance post-9/11 that solidified the choice of the young man.

When the World Trade Center fell, the nearby Brookfield properties became the subject of speculation as to their safety, driving down share price. Flatt went to New York to check out the property and brought in materials from its forest product concern to help board up blown-out windows in theirs and other buildings near ground zero.

While his quick action helped stabilize the company's stock during a trying time, it remained to be seen if he could produce the same magic at the conglomerate as he did with Brookfield, especially given the status of holding companies, the senior executives' lock hold on the company's board, and Jay Cockwell's ongoing influence in the position of co-chair. Cockwell's strategy lay in the cross ownership; Flatt would have to abandon that to make significant change.

Brascan found itself looking to its other foreign investments with some concern as the political and economic situation in Brazil destabilized. The Brascan Brazil Ltd. subsidiary held interest in the real estate, mining, agriculture, power generation, and financial services sectors. When Brazil's currency went on a slide in 2002, the company's financial operations were exposed to possible losses and highlighted again the many and varied dangers inherent to international business.

In an effort to beef up its already impressive real estate business, in 2003, Brascan got involved in a bidding war for the control of the United Kingdom's Canary Wharf Group. It also entered into one of the largest financing deals ever constructed in the commercial real estate market.

In 2004, Brascan acknowledged that Noranda Inc. was involved in merger talks with global mining companies. The natural resource company gained the majority of its sales from copper and nickel mining and smelting. Forest product subsidiaries Norbord Inc. and Fraser Papers Inc. were expected to be next on the trading block.

Company Perspectives:

Brascan has a proud history spanning over 100 years that includes the successful operation of world-class real estate, power generation, financial management and resource assets as well as ownership interests in some of Canada's best known corporations, which in the past included Labatts, London Life and Seagram. While the core of our business in the past decade has narrowed to three areas—real estate, power generation and asset management—we remain singularly focused on enhancing value for our shareholders.

Although losing the bid for control of London's Canary Wharf in 2004, Brascan gained 72 New York State hydroelectric generating plants. The two deals represented the wave of the future. "For Canada's Brascan Corp., it's goodbye, rocks and trees, and hello, buildings and dams," wrote Elena Cherney for the Wall Street Journal. By focusing on power generation and real estate, Brascan felt it would draw in more institutional investors growing portfolios for the wave of retirees on the horizon.

Principal Subsidiaries

Brascan Financial Corporation; Great Lakes Power Inc.

Principal Competitors

Domtar Inc.; Inco Limited; Trizec Properties.

Key Dates:

1899:: Power business is established in Sao Paulo, Brazil.
1912:: Brazilian Traction, Light and Power Company is incorporated in Toronto.
1923:: Canadian Arena Company (Carena) is incorporated.
1954:: Edper Investments Limited is incorporated in Montreal.
1969:: Brazilian telephone operations are sold and the name is changed to Brascan.
1973:: Brascan acquires Great Lakes Power.
1976:: Edper Investments becomes the major shareholder of Trizec.
1979:: Edper acquires a controlling interest in Brascan.
1989:: Edper Investments Ltd. is renamed Edper Enterprises and makes its public offering.
1997:: The Edper Group and Brascan Limited combine to form EdperBrascan Corporation.
2000:: The company is renamed Brascan Corporation.