Southam Inc.

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Southam Inc.

150 Bloor Street West
Suite 900
Toronto, Ontario
Canada M5S 2Y8
(416) 927-1877
Fax: (416) 927-8563

Public Company
Incorporated: 1871 as Southam Ltd.
Employees: 12,000
Sales: C$1.17 billion (US$929.83 million)
Stock Exchanges: Toronto Montreal
SICs: 2711 Newspapers; 2721 Periodicals; 5942 Book Stores

Southam Inc. is a Canadian communications conglomerate whose primary business is newspaper publishing. Southam publishes 17 daily newspapers, including the Montreal Gazette and the Windsor Star, and 56 community newspapers. Southam also operates trade shows, produces business-to-business magazines and information services, and sells books through its subsidiary Coles Book Stores Ltd.

Southam’s history spans well over a century and largely parallels the development of the newspaper industry in Canada. William Southam, a self-made man, left school in 1855 at age 12 and got his first job delivering papers for the London (Ontario) Free Press. In 1871 Southam, then 33 years old, bought a failing newspaper in Hamilton, Ontario, with partner William Carey. He paid $4,000 for his part in the venture. Southam was off to a small start but already had his eye on the Spectator, a much larger venture.

During this time, newspapers survived largely on government patronage. The Spectator and Journal of Commerce had prospered due to favorable government advertising contracts secured from the Conservative administration, which lasted until 1873. But by 1877 the rival Liberals ruled and advertising and printing contracts slumped. Southam and Carey were betting on a Conservative victory in the upcoming elections, which would assure the fortunes of the Spectator.

After becoming half-owner of the Spectator, Southam made sure the newspaper backed the Conservative Party in the election. The gamble paid off: on September 17, 1878, the Spectator’s presses ran late announcing the Conservative return to power.

In 1881 Southam and Carey branched out by purchasing a printing firm in Toronto, the Mail Job Printing Co. They printed railroad timetables and folders and eventually got into theater programs, posters, and even shredded paper flakes for parades. The Spectator also expanded by beginning a book printing business.

Then, in 1896, after the Liberal government regained power, the owners of the Ottawa Citizen, another Conservative government paper, feared a slump in government advertising and printing contracts. They turned to Southam as a buyer and a second newspaper was added to the company’s stable. Wilson Southam, the eldest son in the family, was pegged to run the Citizen. He was soon joined by Harry, the fourth eldest son.

The Southam family’s control over the company expanded further. In 1889, Southam’s second son, Frederick Neal, was sent to Montreal to open a printing shop to serve the railway industry headquartered there. For a mere $1500, Neal was able to buy two ticket presses and a cutting machine and hire seven staff members.

In 1904 the company was reorganized and renamed Southam Ltd. Its portfolio included ownership of the Citizen, half of the Spectator, printing plants and investments in steel making and other manufacturing concerns. Five years later, the Mail Job Printing Co. in Toronto was renamed Southam Press Ltd., and operations were moved to Duncan and Adelaide Streets in Toronto.

Seeking expansion by penetrating new markets, Southam acquired other newspapers. In 1908 Southam bought a controlling interest in the Calgary Herald, the Mining and Ranch Advocate, and the General Advertiser. Four years later, the Edmonton Journal was added to its portfolio.

In the early part of the century, brothers Wilson and Harry Southam got into trouble for encouraging critical coverage from the Citizen’s reporters. The elder Southams hoped matters might repair themselves when the Conservative government of Robert Borden returned to power in 1911. But the Borden regime became so critical of Citizen coverage of its affairs that it threatened to open a rival newspaper in Ottawa.

Matters grew to a head in 1912 when founder William Southam canceled his own home subscription to the Citizen over its editorial trespasses. The company began a policy that grants newspaper editors independence from Southam’s owners and, because of the company’s size, from local pressures. The newspaper chain would have, in theory, no “Southam editorial line.” Instead, each management would create one for their newspaper as they saw fit.

Despite these troubles, in 1920, Southam purchased the Winnipeg Tribune and was well on its way to becoming among Canada’s largest newspaper and communications chains. The Tribune had grown out of the ashes of the former Winnipeg Sun.

Two years later, the Southams—whose corporate vehicle was now called William Southam and Sons—pushed even further westward when they bought a controlling interest in the Vancouver Province. Not long after, the rival Vancouver daily, the Sun, ran into financial trouble under owner Robert Cromie. He knew who to turn to for help, and Frederick Neal Southam offered a lifeboat. William Southam and Sons would assume a third mortgage on the Sun.

Frederick Neal Southam would serve as president of William Southam and Sons from 1928 to 1945. He took over from Wilson, who had served from 1918 out of Ottawa. After the First World War, company founder William Southam began gradually ceding control to his five sons.

In the 1920s, Southam newspapers branched out into the emerging radio broadcast market. The first was the Vancouver Province, which broadcast on station CDED to crystal radio listeners beginning on March 13, 1922. Both the Edmonton Journal and the Calgary Herald went to the airwaves six weeks later, taking a 60 percent stake each in stations CJCA and CFAC, respectively. In 1954, Southam would acquire a 20 percent stake in station CHCT-TV in Calgary. In 1924 the Hamilton Spectator traded advertising space in its newspaper for the right to operate its own radio station.

Three years later, Southam went through a thorough restructuring, changing its name to the Southam Publishing Company Ltd. The main aim of this move was to gather all outstanding shares Southam held, many reflecting minority stakes in regional newspapers and broadcasting concerns, and exchange them for shares and securities of the new company.

The company also established offices in Montreal and Toronto in order to be able to sell advertising space throughout the newspaper chain. In addition, Southam sent reporters to bureaus in Ottawa, Washington, and London. Through this network, reporters could file stories for use in any of the Southam newspapers. So was born Southam News Services.

In 1945 union staff at the Winnipeg Tribune went on strike. Southam’s head office refused to intervene, declaring the dispute a local matter. But the International Typographical Union, in solidarity with the striking Winnipeg staff, brought Southam papers in Hamilton, Ottawa, Edmonton, and Vancouver out on strike. The Vancouver strike turned bloody when printers attempted to cross the picket line and were beaten back. Trucks attempting to move newspapers from the printing plant were overturned and burned.

Earlier, in 1938, the company’s name had been changed yet again to the Southam Company. Shares in the company were first issued to the public on the Toronto Stock Exchange in 1945. Three years later, Southam purchased all outstanding shares belonging to the News of Medicine Hat, in Alberta, for $125,000. In 1955 the company took full control of the newspaper.

By the 1960s the company was branching out into other industries. In 1960 St. Clair Balfour, then president of Southam, concluded a deal to buy Hugh C. MacLean Publications Ltd. That led shortly to the formation of Southam-MacLean Publications Ltd. The business comprised business and professional trade magazines. Under Southam’s stewardship, it began conducting trade shows, seminars, and market research and opened yet more trade publications. It also formed Videosurgery, which tapes medical operations and sells them to doctors and medical schools in North America for training and instruction.

In the next four years, Southam purchased up to 20 business publications of varying sizes, including 14 journals bought as part of Age Publishing Co. Ltd. of Toronto for $792,000. By far the largest of these acquisitions was Southam-Maclean Publications’ purchase of the Financial Times of Canada from E.C. Ertl estate in 1961. By 1965, Southam moved its head office from Montreal to Toronto, nearer Bay Street and that city’s banking and financial core.

Also in 1965, Southam formed Southstar Publishers Ltd., a joint venture with Toronto Star Ltd., to publish the Canadian, a weekly glossy magazine. The Canadian would eventually appear weekly in many Southam newspapers.

A year later, the company scooped up the North Bay Nugget after the employee-owned newspaper was put on the market. At the same time, Don Cromie, now owner of the Vancouver Sun, encountered financial problems of his own and turned once again to Southam for help. A handshake aboard a boat in the Vancouver harbor between Cromie and St. Clair Balfour, then managing director of Southam, solved matters. The Province would print a morning edition and the Sun would retain the afternoon slot. Both newspapers would be sold to a third company, Pacific Press Ltd., to be jointly owned by Southam and Sun Publishing. In December 1965, both Vancouver newspapers moved to a $10 million plant on Granville Street in Vancouver. Two years earlier, Don Cromie had sold his stake in Sun Publishing to F.P. Publications.

Meanwhile, across the country in Weston, Ontario, Southam bought Murray Printing & Gravure for $700,000, a move that increased Southam’s printing capacity by half. The Murray plant was modernized and Southam’s Toronto printing capacity was relocated to the new site.

In 1969 Southam expanded yet again by purchasing the Windsor Star and the Brantford Expositor. The buying spree continued into 1971, when the company added the Montreal Gazette to its stable, paying $3.7 million and 100,000 shares of the company. The Montreal newspaper had been formed almost 200 years earlier when a colleague of Benjamin Franklin, then in Montreal to win recruits to the American Revolution, stayed behind after the inventor and statesman left, and formed his own newspaper. By the end of 1971 Southam had also purchased the Owen Sound Sun-Times for $950,000 and the Prince George Citizen for $2 million.

In November 1973 the Ottawa Citizen moved to a modern, purpose-built plant. Here it would become the first newspaper in Canada to use video terminals for editing newspaper articles, as opposed to running a red pen over type-written copy.

In 1975 Gordon Fisher took over from Balfour as president of Southam. That same year the company purchased the Daily Star in Sault Ste. Marie, Ontario. In 1976 the Hamilton Spectator moved into a new $23 million plant, complete with a newsroom the size of a football field.

Two years later, the name of the company was changed to its current name, Southam Inc. The company also made a strategic purchase to go into book-selling, buying Coles Book Stores Ltd. at $23 a share. Coles would subsequently become the country’s largest book seller, with over 250 outlets in 124 cities and towns, including 58 U.S. outlets.

Meanwhile, Southam strengthed its hold on both the major eastern and western newspaper markets. In early 1980, Southam bought a one-third interest in the Montreal Gazette from F.P. Publications for $13 million. This move gave it full control of Montreal’s leading English-language newspaper. That same year, Southam strengthened its hold on the Vancouver newspaper market when it bought outright control of Pacific Press Ltd. for $42.25 million. A year later, the Kamploops News, in British Columbia, was added to the company’s newspaper stable.

The early 1980s recession hit advertising revenues at Southam’s newspaper operation, with western Canada hit the hardest. With the western newspaper sector struggling, the focus was on Southam’s non-newspaper assets to perform and make up for lost advertising revenue. One competitive measure was to expand into the U.S. market; in October 1983, Southam acquired Dittler Brothers, of Atlanta, Georgia, for $67.6 million.

Southam was branching out from its core newspaper operation with gathering pace. In fact, in 1984, revenue from Southam’s newspaper operations and other business segments balanced out for the first time. Such progress was welcome because labor lock-outs in Vancouver and Montreal the previous year had cost Southam $6.5 million in earnings.

In 1985 Gordon Fisher, Southam’s president, died suddenly after an unexpected illness, leaving no clear successor. That opened the way for rumored takeover bids for the company and a slumping share price. The slide in stock value was eventually halted by a share exchange worth $225 million between Southam and rival Torstar Corporation. Torstar gained a 23 percent stake in Southam but signed an agreement barring it from purchasing a controlling interest in its rival for at least ten years. For Southam, the Torstar arrangement enabled the Southam family to retain control of the company while holding only 23 percent of outstanding shares.

In 1986 Southam consolidated its newspaper assets by forming the Southam Newspaper Group, led by Paddy Sherman. The company also established four other separate business segments: Southam Printing Ltd, Coles Book Stores Ltd., Southam Communications Ltd., and Southam Inc., which included a 30 percent investment in Torstar.

Sales and acquistions highlighted much of Southam’s business activity in 1987. Further expansion continued as Southam expanded into the Quebec French-speaking market by publishing Le Matin, an up-scale tabloid daily. In total, for 1987, Southam spent $77 million on new newspaper acquisitions throughout Canada. Southam also sold its 49 percent interest in Sun Publishing Company to majority shareholder L. D. Whitehead; and Coles Book Stores sold its 48 U.S. outlets to Waldenbooks Inc. of Stamford, Connecticut.

In 1988 the company resolved a bitter, six-month-long strike at the Montreal Gazette. Despite this, sales for the year increased by 13.5 percent to $1.45 billion. In August of that year, Coles Book Stores launched its first Active Minds store in Calgary. The book store is aimed at younger readers. A second store soon opened in Toronto.

In 1989 a slowing Canadian economy was cited as evidence of a need for caution ahead for Southam’s business plans. Hugh G. Hallward, now chairman of the company, said in the 1989 annual report: “Looking ahead to 1990, we see … slower economic growth for Canada as a whole than in 1989, but better in the West than in the East.” Hallward was essentially drawing the lines of the forthcoming recession, which hit Eastern Canada, and especially Ontario, harder than elsewhere. In late 1990 Southam sold the money-losing Financial Times of Canada, based in Toronto, to rival Thomson Press, for an undisclosed sum.

Troubles continued into 1991. Southam saw its advertising sales drop five percent compared with a year earlier. A number of acquisitions boosted total company sales, which jumped nine percent to $1.8 billion in fiscal 1990. But profits were down sharply to $2.7 million in 1990, compared to $90.5 million in 1989.

Further complicating Southam’s troubles, the government brought an anti-trust case against the company. Southam was ordered to sell three community newspapers it had bought in 1990, all based in and around Vancouver. The government argued that Southam had monopolized the Vancouver market through its ownership of Pacific Press Limited. Divesting itself of the three newspapers, it was argued, would create room for potential competitors in the Vancouver market.

In October 1991, the 114-year tradition in which a member of the Southam family controlled the business empire ended. William Ardell, previously head of the Coles Book Stores chain and Southam Business Communications, was named to succeed John Fisher as CEO. Ardell was seen as the turnaround specialist Southam needed to restructure itself during the early 1990s recession. The downside was that Ardell had no experience running newspapers, Southam’s principal business.

Uncertainty regarding the future of the company fed rumors in financial circles about impending takeover. One persistent rumor was that Torstar, with its one-third ownership of Southam, was displeased with its slumping profit line and was again entertaining takeover designs.

In 1992 Conrad Black, head of newspaper and magazine publisher Hollinger Inc., bought Torstar’s 22.6 percent stake in Southam for $259 million. Black indicated at the time he was looking to hold the Southam shares for the long term, and had no takeover plans in mind.

Meanwhile, Ardell moved quickly to stem losses on the newspaper side. In November 1992 the newspaper group was split into two groups—Metro Newspapers/City and Community Newspapers, with Jim Armitage and Ray Elliot appointed presidents of the respective groups.

This followed Southam’s sale of its Canadian Web Group printing operations to G.T.C. Transcontinental Group Ltd. for just under $105 million. In order to raise cash, Southam also sold its 35 percent interest in Telemedia Publishing Inc. for $18 million, and sold its entire stake in Torstar.

For the future, Southam must cut its losses if it is to maintain the loyalty of its shareholders in the face of a possible takeover bid from Hollinger Inc. Widespread cost-cutting measures continue on the newspaper side, with most of the cost savings coming from job cutbacks. For example, employees and management at Pacific Press in Vancouver are facing sale or foreclosure unless they improve their bottom line. Another contining strategy for long term growth is a commitment to debt reduction.