Power Corporation of Canada

views updated Jun 27 2018

Power Corporation of Canada

751 Victoria Square
Montreal, Quebec H2Y 2J3
Canada
Telephone: (514) 286-7400 Fax: (514) 286-7424
Web site: http://www.powercorp.ca

Public Company
Incorporated: 1925
Employees: 28,000
Sales: C$14.73 billion (1999)
Stock Exchanges: Toronto
Ticker Symbol: POW
NAIC: 551112 Offices of Other Holding Companies; 52421 Insurance Agencies and Brokerages; 513210 Cable Broadcasting Networks; 51111 Newspaper Publishers

Power Corporation of Canada controls a variety of companies involved in finance, insurance, and communications. Through subsidiary Power Financial Corporation, the company controls the largest mutual funds company in Canada, Investors Group, and the largest life insurance company in Canada, Great-West Lifeco. The other primary operating subsidiaries include Pargesa Holding, which owns substantial investments in a variety of industries in Europe, and Gesca Ltée, the publisher of Montreal’s La Presse and three other daily newspapers.

Origins and History of Great-West: 1890s to Mid-1980s

In the early 1890s, Winnipeg was a frontier town of lumbermen and plains traders. As a stop on the slowly growing Canadian Pacific Railway, it was a promising growth point in the western province of Manitoba. The difficulty of transportation combined with drought created hard economic times for the region during the decade, however. An optimistic local businessman, Jeffry Hall Brock, recognized that capital was needed to invest in local farm and retail development. His vision was to collect western Canadians’ savings via insurance sales, thereby offering them security and protection, while simultaneously financing development through the proceeds. At this time, only nine of the 40 insurance companies in Canada were Canadian. Not one of these companies was based in western Canada.

The Great-West Life Assurance Company was incorporated in 1891 with a name that reflected the company’s regional pride; the hyphen was a typesetter’s error. In the first year, 834 life insurance policies were sold, representing more than $2 million worth of protection, by a sales force of three that included Brock. The bold enterprise attracted the involvement of the area’s outstanding businessmen, and early shareholders included bakers, farmers, a harnessmaker, and the sheriff. Support came from bustling Toronto as well as from many local rural communities. The mayor of Winnipeg, Alexander Macdonald, became Great-West’s first president in 1892. Brock was made managing director.

The company issued its premier manual in 1892, offering six insurance plans. The first claim was received that same year. By the end of 1893, Great-West—competing with five- to 50-year-old companies across Canada—ranked eighth highest in profit-ability. At this point, the self-confident young company made the remarkable decision to enter the eastern Canadian markets. Its well-established competitors were situated in the East, as were the country’s banking, financial, and manufacturing institutions. The West had essentially one industry: agriculture. In Great-West’s first three years, it had achieved the financial backing and business volume that had taken other companies up to 15 years to reach.

Great-West’s prosperity continued during the next two decades. By the turn of the century, the company was represented in every province and was the country’s fastest growing life insurer. As the economy improved when the region’s depression lifted, the service industry benefited. In 1896 Great-West gained the largest percentage of new business written, out of 21 Canadian life insurance companies, to make it only $80,000 behind the industry leader in aggregate gain of policies in force. The first shareholder dividends were paid in 1901, and dividends have been paid every year since.

With the war came a boost to the area’s economy, which had declined as the wheat boom receded and freight rates climbed, but the war presented the life insurance industry with the problem of wartime policies. Most firms charged extra premiums for those in the service, but Great-West kept its extra charges at a minimum as part of its war effort. Throughout the war, the company managed to keep up its record, maintained since 1906, for writing more ordinary business in Canada annually than any other company. Nevertheless, the war’s impact was felt: claims for wartime deaths totaled $1.5 million. Almost as catastrophic was the flu epidemic that flared up at the war’s end from 1918 to 1919, which cost Great-West more than $1 million in death claims.

Canada, like other countries, then contended with conditions following the war, including high rates of inflation and unemployment, labor unrest, and slowed agricultural output. Though the economic situation worsened through the 1920s, Great-West showed a steady increase in business. In 1920, U.S. operations were extended into Michigan and Minnesota. That same year, Great-West became one of the first companies to offer group insurance. The concept took many years to catch on. In 1940 group insurance was still only nine percent of the company’s total business. In later years it comprised more than half. In 1926 Macdonald retired as president, succeeded by G.W. Allan, who had been company director for 22 years.

Great-West, which had initially concentrated its investments in farm mortgages, had diversified since the war into government bonds and city mortgages. Because of its diversified investments and the fact that stock holdings were a very small part of the company’s portfolio, Great-West was well insulated when the market crash of 1929 occurred.

The Great Depression years of the next decade provided a new challenge. Business declined between 1932 and 1937, but Great-West managed a gradual increase in assets during the period. By the company’s 45th anniversary in 1936, it provided coverage for nearly one million people in North America, issuing an average of 60 policies per business day. New insurance plans were introduced during the Depression, including a policy for the professional woman and a family protection policy. By the summer of 1939, Great-West was again enjoying record-breaking figures in applied business.

The decade of depression was ended by the outbreak of World War II, which stimulated employment and industrial activity. The life insurance industry was dramatically revived, and between 1939 and 1945 Great-West enjoyed tremendous growth as well as expansion into Indiana, Missouri, Ohio, Kansas, California, and Pennsylvania. Group insurance and group pension plans steadily increased. Also during the war years, Great-West entered into the individual accident and health insurance fields. The company changed presidents in 1940, when M.F. Christie took the job, and again in 1943, when W.P. Riley assumed the position.

During the postwar boom, the company’s business boomed too. In 1946 Great-West’s business-in-force reached the $1 billion mark. It would reach its second billion only six years later and its third three years after that. The company continued its expansion in the United States, entering seven more states between 1946 and 1952. In 1958 it started doing business in five more states and the District of Columbia. Also in 1958 Great-West began technological expansion; it purchased the first computer in western Canada.

Growth continued throughout the prosperous 1960s. In 1968 Great-West became the first Canadian company authorized to sell a variable annuity in the United States. More than $1 billion of new business was contracted that year.

Business in the United States grew rapidly. By 1973 Great-West was licensed in 28 states and the District of Columbia, and had opened a marketing office in Denver, Colorado. The company separated its Canadian and U.S. operations, except for investment and corporate operations, in 1979. It also opened the company’s U.S. headquarters in Denver that year. By then Great-West Life was operating in 45 states. From 1979 to 1983 U.S. business nearly doubled.

During the next decade, Great-West concentrated on product development, asset management, and developing the two regional operations. The Canadian and U.S. markets developed different needs during the 1980s. One of the company’s new products was a universal life policy, first introduced in 1982—the first of its kind designed for the Canadian market. A similar policy was introduced in the United States the following year.

Another Great-West innovation was a system it introduced in Canada that paid agents levelized commissions and offered loan arrangements for agents needing additional income. It was the first insurance company in North America to adopt such a system. This arrangement allowed the sales force to experiment with the sale of new products with less fear of financial repercussion. As a result, universal life business increased from 30 percent in 1983 to almost 60 percent in 1985. Over those three years, career agents enjoyed a 65 percent compound growth rate in average earnings.

Company Perspectives

Power Corporation is committed to enhancing shareholder value through the active management of long-term investments and responsible corporate citizenship. It is of the view that these objectives are best achieved and risks minimized through sectoral and geographic diversification. Power believes that the future belongs to those corporations having a well-defined strategic vision anchored in strong core values. These principles guide the Corporation in all of its investment decisions.

In the mid-1980s, the company’s structure changed. Great-West had been a joint shareholder-policyholder-owned company from its inception until 1969, when Investors Group acquired controlling interest in the company’s common shares. Investors Group was acquired by Power Corporation, a Montreal-based holding company with interests in publishing, pulp and paper, and financial services, in 1969. In 1984 Power Corporation formed Power Financial Corporation to hold Great-West and its other financial service companies.

Origins of Power Corporation

Behind the formation of Power Corporation stood two financiers, AJ. Nesbitt and P.A. Thomson, principal partners in a Montreal investment firm named Nesbitt, Thomson and Company. Shortly after its founding in 1912, the company began underwriting and investing in Canadian hydroelectric utilities, financing the construction of utilities and promoting their development. For nearly 15 years, the investment firm poured its resources into the burgeoning electricity industry, but during the early 1920s the industry was besieged by an unwelcomed intruder, prompting Nesbitt and Thomson to take action. An un-named speculator from Chicago was marching across the United States, acquiring one utility company after another as he went. Nesbitt and Thomson feared an incursion onto Canadian ground and the probable end to their underwriting and investment activities. To help keep Canada’s power sector in Canadian hands the pair resolved to form a holding company that would serve as an umbrella organization for a family of affiliated Canadian utility companies. Consolidation became Nesbitt’s and Thomson’s mode of defense, and Power Corporation of Canada, formed in April 1925, became the instrument through which the financiers would ward off the hostile threats of foreigners.

Power Corporation started business with an initial capitalization of C$5.5 million, with the majority of the company’s shares held by its two founders. Nesbitt was appointed as president of the holding company, but he delegated much of the day-to-day management of Power Corporation to his vice-president, James B. Woodyatt, an electrical engineer and power company executive. With their start-up money, Nesbitt and Thomson did what they did best—invested in utility companies—assembling Power Corporation’s first portfolio of properties. They assumed control over three utility companies, Canada Northern Power, Ottawa and Hull Power, and Ottawa-Montreal Power, and made sizable investments in a host of other power companies, including East Kootenay Power, Winnipeg Electric, Dominion Power and Transmission, and Southern Power. By the end of the company’s first year, net earnings reached C$246,000.

Nesbitt and Thomson had hoped to profit from an anticipated growth in demand for electricity by industrial and residential customers. Their first five years in business substantiated their hopes, as Power Corporation realized strident growth. To promote the use of electricity, the founders created a department exclusively devoted to encouraging new industries to locate their plants near Power Corporation’s utility companies. To spur residential demand, the company opened stores stocked with electrical merchandise, presenting the wonders of the new age to communities near the company’s facilities. Most importantly, Nesbitt and Thomson continued to add meaningfully to Power Corporation’s utility portfolio, developing a large and diverse collection of assets. Between 1925 and 1930, the founders invested in more than two dozen public utilities operating in a wide geographic area, stretching from the United States to Japan to Brazil. By 1930, Power Corporation’s affiliated companies operated 40 power plants, enabling the company to eclipse C$5 million in net earnings for the year.

After a rousing start to its business life, Power Corporation suffered through a tortuous period when the Great Depression brought its strident progress to a halt. Financial stagnation set in, as the company’s earnings either fell or remained flat for more than a decade. Further, the company’s investments plunged in value. Many were liquidated at substantial losses, striking a deleterious blow to the once-powerful concern. Un-like many other enterprises, however, Power Corporation survived the most severe economic crisis of the 20th century and, after the disruption engendered by World War II, Nesbitt and Thomson could look forward to resuming the progress achieved during their first five years as entrepreneurs.

Key Dates

1891:: Great-West Life Assurance Company is incorporated.
1925:: Power Corporation is formed as a holding company for Canadian utilities.
Early 1950s:: Company begins to diversify its interests away from the utility industry.
1968:: Power Corporation merges with Trans-Canada Corporation Fund.
1969:: Power Corporation purchases Great-West Lifeco.
1981:: Company makes initial investment in Pargesa Holding S.A.
1984:: Power Financial Corporation is formed as a subsidiary.
1989:: Company sells its shares in Consolidated-Bathurst and Montreal Trust.
1997:: Power Corporation acquires London Insurance Group for C$3 billion.
1999:: Power Broadcasting’s Canadian radio and television assets are sold.

A Change in Strategy in the 1950s

As Power Corporation celebrated its 25th anniversary in 1950, the company stood poised to reap the rewards of in-creased energy usage during the postwar industrial expansion set to unfold. Approximately 60 percent of the company’s investments were in its six mainstay hydroelectric companies, which supplied electricity or gas to more than two million Canadian customers. At first blush, Power Corporation’s enviable foundation in energy suggested great promise for the years ahead, but by the early 1950s the company’s future presence in the power sector was already in doubt. Nesbitt and Thomson had taken note of three alarming events. In 1944, Northern Ontario Power, a subsidiary of Canada Northern Power, had been expropriated by the Ontario government’s Hydro-Electric Power Commission. Two years later, the French government nationalized the public utility companies controlled by Foreign Power Securities Corporation, in which Power Corporation had invested heavily not long after its formation. In 1953, the government-controlled Manitoba Hydro-Electric Board assumed control over Winnipeg Electric, underscoring the emergence of a portentous trend for Power Corporation.

Power Corporation continued to invest in power companies as the 1950s progressed, but Nesbitt and Thomson realized the company’s future depended on developing a new corporate strategy. Toward this end, the financial settlements obtained from the expropriation of Foreign Power Securities and Winnipeg Electric, coupled with the compensation derived from future government takeovers, provided the capital to diversify the company’s portfolio. By 1952, Power Corporation had made substantial investments in other sources of energy and in other industries, most notably in the pulp and paper industry through an investment in Bathurst Power and Paper. Further moves toward diversification followed, as Power Corporation methodically shed its interests in utility companies. The transformation picked up speed following the deaths of Nesbitt in 1954 and Thomson two years later, their mandate for diversification em-braced by their sons, A. Deane Nesbitt and Peter N. Thomson, who assumed control over the company.

As Power Corporation entered the 1960s, it prepared to shed the vestiges of its former self. The company began the decade still regarded as a holding company primarily interested in electrical energy, but the percentage of its investment portfolio devoted to hydroelectric power had dropped from 60 to 39 during the previous decade. Its remaining investments were in oil, gas, and pipelines (33 percent); finance (11 percent); pulp and paper (ten percent); and other industries (seven percent). Peter Thomson took over as president and chairman of the company in 1962, marking the beginning of fast-paced changes and the adoption of a new corporate strategy. His efforts were financed by the nationalization of utility companies in which Power Corporation held substantial stakes. In 1961, the government of British Columbia expropriated the principal assets of British Columbia Power, yielding C$8 million in compensation for Power Corporation Two years later, the government of Quebec paid C$19 million for Power Corporation’s shares in Shawinigan Water and Power and the Quebec subsidiary be-longing to Canada Northern Power. With the proceeds obtained from these expropriations, Thomson altered Power Corporation’s investment strategy. Instead of investing in a broad assortment of companies in which Power Corporation maintained little managerial control, Thomson decided to invest in fewer, more diversified companies in which the company could assume a more active managerial posture. Accordingly, the number of companies composing Power Corporation’s portfolio dipped from 31 to 18 between 1962 and 1965.

Thomson did not have long to test the merits of his new investment strategy. During the mid- and late 1960s, Power Corporation was beset by a number of problems, as several of its affiliated companies suffered financially. For example, Consolidated-Bathurst, which had been created in 1966 from the merger of Power Corporation’s two largest pulp and paper investments, shared in the losses recorded by the rest of the industry as overcapacity and rising operating costs plagued Canadian pulp and paper companies. Canada Steamship Line, another Power Corporation property, was rocked by protracted labor disputes. Other Power Corporation affiliates saw their value plunge as well, with some of the problems attributable to external pressures and some to problems of their own making. For Thomson, the problems were serious enough to warrant a far-reaching response, one that marked a momentous turning point in the history of Power Corporation In 1968, Thomson agreed to merge with Trans-Canada Corporation Fund (TCCF), a C$75-million holding company controlled by legendary entrepreneur Paul Desmarais.

The Desmarais Era Begins in 1968

A native of Sudbury, Ontario, Desmarais was 39 years old when he became chairman and chief executive officer of Power Corporation. Roughly two decades earlier, Desmarais had dropped out of law school to rescue his father’s failing bus service. After resurrecting his father’s company, Desmarais used it as a foundation for what would become a business empire. He acquired other bus lines in Ottawa, Quebec City, and throughout the province of Quebec, then diversified his interests into life insurance, newspapers, communications, and real estate. By the time of the share-exchange transaction with Power Corporation, Desmarais’s core assets included owner-ship of Provincial Transport, a major inter-urban bus line, majority control of Toronto-based Imperial Life Assurance, a raceway, a radio station, and various real estate properties. Further, Desmarais’s TCCF also controlled Gesca Ltée, which controlled La Presse, Montreal’s largest and most respected daily newspaper, as well as 62 percent of Les Journaux TransCanada’s three daily newspapers and ten weekly newspapers in Quebec.

Initially, as Power Corporation evolved from an investment holding company into an operating company, Thomson and Desmarais each controlled 30 percent of the voting shares of the newly merged company. By 1970, however, Desmarais had gained sole control. He immediately began stripping away Power Corporation’s portfolio in an attempt to consolidate the company’s control over a small number of diverse assets. The restructuring process took roughly a decade to complete, which restricted the company’s ability to expand in any substantial manner, but by the end of the 1970s Power Corporation was healthy on all fronts and Desmarais could point to robust financial results. In 1979, the company’s consolidated net earnings reached C$98 million, more than double the total registered the previous year. In 1980, net earnings swelled to C$121 million, convincing Desmarais that Power Corporation was strong enough to pursue expansion.

Before Desmarais embarked on the acquisition front, he first completed a divestiture—an enormous sale that, for the first time in his business career, left him without a bus service. In 1981, Power Corporation sold its CSL Group, which included Canada Steamship Lines, an operator of oceangoing vessels and Great Lakes freighters, and the bus lines Desmarais had acquired during the 1960s. The C$195 million divestiture allowed Power Corporation, according to federal regulations, to acquire 4.4 percent of the voting shares of Canadian Pacific Limited. A massive rail, shipping, oil, and real estate conglomerate. Also in 1981, Power Corporation invested C$20 million in Pargesa Holding S.A., a Swiss corporation that owned a major interest in Banque de Paris et des Pays-Bas. Subsequently, Power Corporation’s major financial holdings in Investor Group, Great-West Life, Montreal Trust, and Pargesa were transferred in 1984 to a new subsidiary, Power Financial Corporation, which completed an initial public offering (IPO) of stock in 1985.

With the proceeds raised from selling a portion of Power Financial to the public, combined with the sale of stock of other Power Corporation subsidiaries, Desmarais eliminated all long-term debt. Once the company was free of debt—a condition Desmarais maintained until the end of his leadership tenure—Power Corporation pursued strategic expansion. In 1986, the company acquired the Quebec and Ontario radio and television stations belonging to Ketenac Holdings Ltd. and Prades Inc., which were later consolidated into a new wholly owned subsidiary, Power Broadcasting. Concurrently, the company, through its Consolidated-Bathurst subsidiary, formed a joint venture with China International Trust and Investment Corporation (CITIC), the international investment arm of the People’s Re-public of China. Initially, the joint venture constituted the acquisition of a pulp mill in Castlegar, British Columbia, marking the beginning of an enduring business relationship with the Chinese government.

The 1980s ended with the sale of one of Power Corporation’s two principal operating companies. Although Desmarais was not looking to sell the company’s stake in Consolidated-Bathurst, he could not refuse the unsolicited offer made by Stone Container Acquisition Corporation. In January 1989, Stone Container offered Power Corporation C$25 per share for its interest in the pulp and paper concern, representing one of the largest deals in Canadian business history. Power Corporation received more than C$1 billion from the deal, giving the company the financial means to explore new business opportunities in the 1990s. The company’s coffers received another substantial windfall two months after the divestiture of Consoli-dated-Bathurst. In March, the parent company of Bell Canada offered more than C$500 million for the shares held by Power Financial in Montreal Trust.

Although Power Corporation had a substantial amount of cash to invest as it entered the 1990s, the first half of the decade was bereft of any major transactions equal to the stature of its two 1989 divestitures. By no means, however, did the company retreat from pursuing expansion. Further investment opportuni-ties were developed with CITIC, resulting in the formation of Power Pacific Corporation, which opened offices in Hong Kong in 1994 and Beijing in 1998. In 1996, Compagnie Luxembourgeosie de Telediffusion, which was indirectly controlled by Pargesa, merged with the broadcasting subsidiaries of Germany-based Bertelsmann, creating CLT-UFA, Europe’s largest radio and television group. Another notable event was the C$180 million investment made by Power Corporation in Southam Inc., Canada’s largest daily newspaper publisher.

New Leadership for the 1990s

In 1996, Desmarais relinquished his posts as Power Corporation’s chairman and chief executive officer, ending an era of remarkable growth for the company. During Desmarais’s tenure, Power Corporation’s corporate assets had increased from C$165 million to C$2.7 billion, as net earnings swelled from C$3 million to more than C$200 million. The difficult task of equaling this record of leadership fell to Desmarais’s two sons, Paul Desmarais, Jr., who was named chairman and co-chief executive officer, and Andre Desmarais, president and co-chief executive officer.

The Desmarais brothers did not shy from imprinting their mark on Power Corporation, as they guided the company toward its 75th anniversary and the beginning of the 21st century. Shortly after they inherited control over the company, Paul, Jr., and Andre sold the company’s interests in Southam for C$294 million. The following year the company, through Great-West Lifeco, paid C$3 billion for all of London Insurance Group, which controlled London Life Insurance, a Canadian insurance company with the largest sales force in the country. The acquisition made Great-West Lifeco the largest health and insurance company in Canada, employing more than 7,000 financial representatives.

As the 1990s drew to a close, Power Corporation appeared to have made a seamless transition from one generation of management to the next. The Desmarais brothers proved them-selves capable leaders during their first five years in charge, and, after selling Power Broadcasting’s Canadian radio and television assets in 1999, possessed the financial resources to galvanize their reputations during the 21st century. The company, during its 75th anniversary year, represented one of Canada’s elite business enterprises, supported by stable and diverse holdings in North America, Europe, and Asia. As Power Corporation entered the new century, consolidated assets eclipsed C$57 billion and net earnings exceeded C$500 million.

Principal Subsidiaries

Gesca Ltée; Power Broadcasting Inc.; CITIC Pacific Ltd.; Power Financial Corporation (67.4%); Power Financial Europe B.V. (The Netherlands); Pargesa Holding S.A. (Switzerland); Great-West Lifeco Inc. (76.6%); Great-West Life Assurance Company; Great-West Life & Annuity Insurance; Investors Group Inc. (67.7%); London Insurance Group Inc.; London Life Insurance Company.

Principal Competitors

Berkshire Hathaway Inc.; Brascan Corporation; Loews Corporation.

Power Corporation of Canada

views updated May 23 2018

Power Corporation of Canada

751 Victoria Square
Montreal, Quebec H2Y 2J3
Canada
Telephone: (514) 286-7400
Fax: (514) 286-7424
Web site: http://www.powercorp.ca

Public Company
Incorporated: 1925
Employees: 23,000
Total Assets: CAD 112.99 billion (2005)
Stock Exchanges: Toronto
Ticker Symbol: POW
NAIC: 551112 Offices of Other Holding Companies; 521111 Offices of Bank Holding Companies

Power Corporation of Canada controls a variety of companies involved in finance, insurance, and communications. Through subsidiary Power Financial Corporation, the company holds: a leading Canadian mutual fund company, IGM Financial Inc.; one of Canada's largest life insurers, Great-West Lifeco Inc.; and a European-based investment firm, Pargesa Holding. Another subsidiary, Gesca Ltee, publishes Montreal's La Presse.

ORIGINS AND HISTORY OF GREAT-WEST

In the early 1890s, Winnipeg was a frontier town of lumbermen and plains traders. As a stop on the slowly growing Canadian Pacific Railway, it was a promising growth point in the western province of Manitoba. The difficulty of transportation combined with drought created hard economic times for the region during the decade, however. An optimistic local businessman, Jeffry Hall Brock, recognized that capital was needed to invest in local farm and retail development. His vision was to collect western Canadians' savings via insurance sales, thereby offering them security and protection, while simultaneously financing development through the proceeds. At this time, only nine of the 40 insurance companies in Canada were Canadian. Not one of these companies was based in western Canada.

The Great-West Life Assurance Company was incorporated in 1891 with a name that reflected the company's regional pride; the hyphen was a typesetter's error. In the first year, 834 life insurance policies were sold, representing more than $2 million worth of protection, by a sales force of three that included Brock. The bold enterprise attracted the involvement of the area's outstanding businessmen, and early shareholders included bakers, farmers, a harnessmaker, and the sheriff. Support came from bustling Toronto as well as from many local rural communities. The mayor of Winnipeg, Alexander Macdonald, became Great-West's first president in 1892. Brock was made managing director.

The company issued its premier manual in 1892, offering six insurance plans. The first claim was received that same year. By the end of 1893, Great-West, competing with five- to 50-year-old companies across Canada, ranked eighth highest in profitability. At this point, the self-confident young company made the remarkable decision to enter the eastern Canadian markets. Its well-established competitors were situated in the East, as were the country's banking, financial, and manufacturing institutions. The West had essentially one industry: agriculture. In Great-West's first three years, it had achieved the financial backing and business volume that had taken other companies up to 15 years to reach.

Great-West's prosperity continued during the next two decades. By the turn of the century, the company was represented in every province and was the country's fastest growing life insurer. As the economy improved when the region's depression lifted, the service industry benefited. In 1896 Great-West gained the largest percentage of new business written, out of 21 Canadian life insurance companies, to make it only $80,000 behind the industry leader in aggregate gain of policies in force. The first shareholder dividends were paid in 1901.

In 1906 the company crossed the border and established U.S. operations in North Dakota. The next year, Great-West topped all Canadian companies in paid-for business. From 50 applications a month in 1893, the company received an average of 375 monthly applications by 1909. However, the growth proved a strain on the founder's health. Brock essentially left the company in 1912 for medical reasons, and he died in 1915. C. C. Ferguson succeeded Brock as CEO in 1915, one year after the onset of World War I. With the war came a boost to the area's economy, which had declined as the wheat boom receded and freight rates climbed, but the war presented the life insurance industry with the problem of wartime policies. Most firms charged extra premiums for those in the service, but Great-West kept its extra charges at a minimum as part of its war effort. Throughout the war, the company managed to keep up its record, maintained since 1906, for writing more ordinary business in Canada annually than any other company. Nevertheless, the war's impact was felt: claims for wartime deaths totaled $1.5 million. Almost as catastrophic was the flu epidemic that flared up at the war's end from 1918 to 1919, which cost Great-West more than $1 million in death claims.

Canada, like other countries, then contended with conditions following the war, including high rates of inflation and unemployment, labor unrest, and slowed agricultural output. Although the economic situation worsened through the 1920s, Great-West showed a steady increase in business. In 1920, U.S. operations were extended into Michigan and Minnesota. That same year, Great-West became one of the first companies to offer group insurance. The concept took many years to catch on. In 1940 group insurance was still only 9 percent of the company's total business. In later years it comprised more than half. In 1926 Macdonald retired as president, succeeded by G. W. Allan, who had been company director for 22 years.

Great-West, which had initially concentrated its investments in farm mortgages, had diversified since the war into government bonds and city mortgages. Because of its diversified investments and the fact that stock holdings were a very small part of the company's portfolio, Great-West was well insulated when the market crash of 1929 occurred.

The Great Depression years of the next decade provided a new challenge. Business declined between 1932 and 1937, but Great-West managed a gradual increase in assets during the period. By the company's 45th anniversary in 1936, it provided coverage for nearly one million people in North America, issuing an average of 60 policies per business day. New insurance plans were introduced during the Depression, including a policy for the professional woman and a family protection policy. By the summer of 1939, Great-West was again enjoying record-breaking figures in applied business.

The decade of depression was ended by the outbreak of World War II, which stimulated employment and industrial activity. The life insurance industry was dramatically revived, and between 1939 and 1945 Great-West enjoyed tremendous growth as well as expansion into Indiana, Missouri, Ohio, Kansas, California, and Pennsylvania. Group insurance and group pension plans steadily increased. Also during the war years, Great-West entered into the individual accident and health insurance fields. The company changed presidents in 1940, when M. F. Christie took the job, and again in 1943, when W. P. Riley assumed the position.

COMPANY PERSPECTIVES

Power Corporation is committed to enhancing shareholder value through the active management of long-term investments and responsible corporate citizenship. It is of the view that these objectives are best achieved and risks minimized through sectoral and geographic diversification. Power Corporation believes that the future belongs to those corporations having a well-defined strategic vision anchored in strong core values. These principles guide the Corporation in all of its investment decisions.

During the postwar boom, the company's business boomed, too. In 1946 Great-West's business-in-force reached the $1 billion mark. It would reach its second billion only six years later and its third three years after that. The company continued its expansion in the United States, entering seven more states between 1946 and 1952. In 1958 it started doing business in five more states and the District of Columbia. Also in 1958 Great-West began technological expansion; it purchased the first computer in western Canada.

Business in the United States grew rapidly. By 1973 Great-West was licensed in 28 states and the District of Columbia, and had opened a marketing office in Denver, Colorado. The company separated its Canadian and U.S. operations, except for investment and corporate operations, in 1979. It also opened the company's U.S. headquarters in Denver that year. By then Great-West Life was operating in 45 states. From 1979 to 1983 U.S. business nearly doubled.

During the next decade, Great-West concentrated on product development, asset management, and developing the two regional operations. The Canadian and U.S. markets developed different needs during the 1980s. One of the company's new products was a universal life policy, first introduced in 1982 and the first of its kind designed for the Canadian market. A similar policy was introduced in the United States the following year.

In the mid-1980s, the company's structure changed. Great-West had been a joint shareholder-policyholder-owned company from its inception until 1969, when Investors Group acquired controlling interest in the company's common shares. Investors Group was acquired by Power Corporation, a Montreal-based holding company with interests in publishing, pulp and paper, and financial services, in 1969. In 1984 Power Corporation formed Power Financial Corporation to hold Great-West and its other financial service companies.

KEY DATES

1891:: Great-West Life Assurance Company is incorporated.
1925:: Power Corporation is formed as a holding company for Canadian utilities.
Early 1950s:: Company begins to diversify its interests away from the utility industry.
1968:: Power Corporation merges with Trans-Canada Corporation Fund.
1969:: Power Corporation purchases Great-West Lifeco.
1981:: Company makes initial investment in Pargesa Holding S.A.
1984:: Power Financial Corporation is formed as a subsidiary.
1989:: Company sells its shares in Consolidated-Bathurst and Montreal Trust.
1997:: Power Corporation acquires London Insurance Group for CAD 3 billion.
1999:: Power Broadcasting's Canadian radio and television assets are sold.
2001:: Mackenzie is acquired by Investors Group.
2003:: Great-West purchases Canada Life.

ORIGINS OF POWER CORPORATION

Behind the formation of Power Corporation stood two financiers, A. J. Nesbitt and P. A. Thomson, principal partners in a Montreal investment firm named Nesbitt, Thomson and Company. Shortly after its founding in 1912, the company began underwriting and investing in Canadian hydroelectric utilities, financing the construction of utilities and promoting their development. For nearly 15 years, the investment firm poured its resources into the burgeoning electricity industry, but during the early 1920s the industry was besieged by an unwelcome intruder, prompting Nesbitt and Thomson to take action. An unnamed speculator from Chicago was marching across the United States, acquiring one utility company after another as he went. Nesbitt and Thomson feared an incursion onto Canadian ground and the probable end to their underwriting and investment activities. To help keep Canada's power sector in Canadian hands the pair resolved to form a holding company that would serve as an umbrella organization for a family of affiliated Canadian utility companies. Consolidation became Nesbitt's and Thomson's mode of defense, and Power Corporation of Canada, formed in April 1925, became the instrument through which the financiers would ward off the hostile threats of foreigners.

Power Corporation started business with an initial capitalization of CAD 5.5 million, with the majority of the company's shares held by its two founders. Nesbitt was appointed as president of the holding company, but he delegated much of the day-to-day management of Power Corporation to his vice-president, James B. Woodyatt, an electrical engineer and power company executive. With their start-up money, Nesbitt and Thomson did what they did best: invested in utility companies, assembling Power Corporation's first portfolio of properties. They assumed control over three utility companies, Canada Northern Power, Ottawa and Hull Power, and Ottawa-Montreal Power, and made sizable investments in a host of other power companies, including East Kootenay Power, Winnipeg Electric, Dominion Power and Transmission, and Southern Power. By the end of the company's first year, net earnings reached CAD 246,000.

Nesbitt and Thomson had hoped to profit from an anticipated growth in demand for electricity by industrial and residential customers. Their first five years in business substantiated their hopes, as Power Corporation realized strident growth. To promote the use of electricity, the founders created a department exclusively devoted to encouraging new industries to locate their plants near Power Corporation's utility companies. To spur residential demand, the company opened stores stocked with electrical merchandise, presenting the wonders of the new age to communities near the company's facilities. Most importantly, Nesbitt and Thomson continued to add meaningfully to Power Corporation's utility portfolio, developing a large and diverse collection of assets. Between 1925 and 1930, the founders invested in more than two dozen public utilities operating in a wide geographic area, stretching from the United States to Japan to Brazil. By 1930, Power Corporation's affiliated companies operated 40 power plants, enabling the company to eclipse CAD 5 million in net earnings for the year.

After a rousing start to its business life, Power Corporation suffered through a tortuous period when the Great Depression brought its strident progress to a halt. Financial stagnation set in, as the company's earnings either fell or remained flat for more than a decade. Further, the company's investments plunged in value. Many were liquidated at substantial losses, striking a deleterious blow to the once-powerful concern. Unlike many other enterprises, however, Power Corporation survived the most severe economic crisis of the 20th century and, after the disruption engendered by World War II, Nesbitt and Thomson could look forward to resuming the progress achieved during their first five years as entrepreneurs.

A CHANGE IN STRATEGY

As Power Corporation celebrated its 25th anniversary in 1950, the company stood poised to reap the rewards of increased energy usage during the postwar industrial expansion set to unfold. Approximately 60 percent of the company's investments were in its six mainstay hydroelectric companies, which supplied electricity or gas to more than two million Canadian customers. At first blush, Power Corporation's enviable foundation in energy suggested great promise for the years ahead, but by the early 1950s the company's future presence in the power sector was already in doubt. Nesbitt and Thomson had taken note of three alarming events. In 1944, Northern Ontario Power, a subsidiary of Canada Northern Power, had been expropriated by the Ontario government's Hydro-Electric Power Commission. Two years later, the French government nationalized the public utility companies controlled by Foreign Power Securities Corporation, in which Power Corporation had invested heavily not long after its formation. In 1953, the government-controlled Manitoba Hydro-Electric Board assumed control over Winnipeg Electric, underscoring the emergence of a portentous trend for Power Corporation.

Power Corporation continued to invest in power companies as the 1950s progressed, but Nesbitt and Thomson realized the company's future depended on developing a new corporate strategy. Toward this end, the financial settlements obtained from the expropriation of Foreign Power Securities and Winnipeg Electric, coupled with the compensation derived from future government takeovers, provided the capital to diversify the company's portfolio. By 1952, Power Corporation had made substantial investments in other sources of energy and in other industries, most notably in the pulp and paper industry through an investment in Bathurst Power and Paper. Further moves toward diversification followed, as Power Corporation methodically shed its interests in utility companies. The transformation picked up speed following the deaths of Nesbitt in 1954 and Thomson two years later, their mandate for diversification embraced by their sons, A. Deane Nesbitt and Peter N. Thomson, who assumed control over the company.

As Power Corporation entered the 1960s, it prepared to shed the vestiges of its former self. The company began the decade still regarded as a holding company primarily interested in electrical energy, but the percentage of its investment portfolio devoted to hydroelectric power had dropped from 60 to 39 during the previous decade. Its remaining investments were in oil, gas, and pipelines (33 percent); finance (11 percent); pulp and paper (10 percent); and other industries (7 percent). Peter Thomson took over as president and chairman of the company in 1962, marking the beginning of fast-paced changes and the adoption of a new corporate strategy. His efforts were financed by the nationalization of utility companies in which Power Corporation held substantial stakes. In 1961, the government of British Columbia expropriated the principal assets of British Columbia Power, yielding CAD 8 million in compensation for Power Corporation. Two years later, the government of Quebec paid CAD 19 million for Power Corporation's shares in Shawinigan Water and Power and the Quebec subsidiary belonging to Canada Northern Power. With the proceeds obtained from these expropriations, Thomson altered Power Corporation's investment strategy. Instead of investing in a broad assortment of companies in which Power Corporation maintained little managerial control, Thomson decided to invest in fewer, more diversified companies in which the company could assume a more active managerial posture. Accordingly, the number of companies composing Power Corporation's portfolio dipped from 31 to 18 between 1962 and 1965.

Thomson did not have long to test the merits of his new investment strategy. During the mid- and late 1960s, Power Corporation was beset by a number of problems, as several of its affiliated companies suffered financially. For example, Consolidated-Bathurst, which had been created in 1966 from the merger of Power Corporation's two largest pulp and paper investments, shared in the losses recorded by the rest of the industry as overcapacity and rising operating costs plagued Canadian pulp and paper companies. Canada Steamship Line, another Power Corporation property, was rocked by protracted labor disputes. Other Power Corporation affiliates saw their value plunge as well, with some of the problems attributable to external pressures and some to problems of their own making. For Thomson, the problems were serious enough to warrant a far-reaching response, one that marked a momentous turning point in the history of Power Corporation In 1968, Thomson agreed to merge with Trans-Canada Corporation Fund (TCCF), a CAD 75 million holding company controlled by legendary entrepreneur Paul Desmarais.

BEGINNING OF DESMARAIS ERA

A native of Sudbury, Ontario, Desmarais was 39 years old when he became chairman and chief executive officer of Power Corporation. Roughly two decades earlier, Desmarais had dropped out of law school to rescue his father's failing bus service. After resurrecting his father's company, Desmarais used it as a foundation for what would become a business empire. He acquired other bus lines in Ottawa, Quebec City, and throughout the province of Quebec, then diversified his interests into life insurance, newspapers, communications, and real estate. By the time of the share-exchange transaction with Power Corporation, Desmarais's core assets included ownership of Provincial Transport, a major interurban bus line, majority control of Toronto-based Imperial Life Assurance, a raceway, a radio station, and various real estate properties. Further, Desmarais's TCCF also controlled Gesca Ltee, which controlled La Presse, Montreal's largest and most respected daily newspaper, as well as 62 percent of Les Journaux Trans-Canada's three daily newspapers and ten weekly newspapers in Quebec.

Initially, as Power Corporation evolved from an investment holding company into an operating company, Thomson and Desmarais each controlled 30 percent of the voting shares of the newly merged company. By 1970, however, Desmarais had gained sole control. He immediately began stripping away Power Corporation's portfolio in an attempt to consolidate the company's control over a small number of diverse assets. The restructuring process took roughly a decade to complete, which restricted the company's ability to expand in any substantial manner, but by the end of the 1970s Power Corporation was healthy on all fronts and Desmarais could point to robust financial results. In 1979, the company's consolidated net earnings reached CAD 98 million, more than double the total registered the previous year. In 1980, net earnings swelled to CAD 121 million, convincing Desmarais that Power Corporation was strong enough to pursue expansion.

Before Desmarais embarked on the acquisition front, he first completed a divestiture an enormous sale that, for the first time in his business career, left him without a bus service. In 1981, Power Corporation sold its CSL Group, which included Canada Steamship Lines, an operator of oceangoing vessels and Great Lakes freighters, and the bus lines Desmarais had acquired during the 1960s. The CAD 195 million divestiture allowed Power Corporation, according to federal regulations, to acquire 4.4 percent of the voting shares of Canadian Pacific Limited. A massive rail, shipping, oil, and real estate conglomerate. Also in 1981, Power Corporation invested CAD 20 million in Pargesa Holding S.A., a Swiss corporation that owned a major interest in Banque de Paris et des Pays-Bas. Subsequently, Power Corporation's major financial holdings in Investor Group, Great-West Life, Montreal Trust, and Pargesa were transferred in 1984 to a new subsidiary, Power Financial Corporation, which completed an initial public offering (IPO) of stock in 1985.

With the proceeds raised from selling a portion of Power Financial to the public, combined with the sale of stock of other Power Corporation subsidiaries, Desmarais eliminated all long-term debt. Once the company was free of debt, a condition Desmarais maintained until the end of his leadership tenure, Power Corporation pursued strategic expansion. In 1986, the company acquired the Quebec and Ontario radio and television stations belonging to Ketenac Holdings Ltd. and Prades Inc., which were later consolidated into a new wholly owned subsidiary, Power Broadcasting. Concurrently, the company, through its Consolidated-Bathurst subsidiary, formed a joint venture with China International Trust and Investment Corporation (CITIC), the international investment arm of the People's Republic of China. Initially, the joint venture constituted the acquisition of a pulp mill in Castlegar, British Columbia, marking the beginning of an enduring business relationship with the Chinese government.

The 1980s ended with the sale of one of Power Corporation's two principal operating companies. Although Desmarais was not looking to sell the company's stake in Consolidated-Bathurst, he could not refuse the unsolicited offer made by Stone Container Acquisition Corporation. In January 1989, Stone Container offered Power Corporation CAD 25 per share for its interest in the pulp and paper concern, representing one of the largest deals in Canadian business history. Power Corporation received more than CAD 1 billion from the deal, giving the company the financial means to explore new business opportunities in the 1990s. The company's coffers received another substantial windfall two months after the divestiture of Consolidated-Bathurst. In March, the parent company of Bell Canada offered more than CAD 500 million for the shares held by Power Financial in Montreal Trust.

Although Power Corporation had a substantial amount of cash to invest as it entered the 1990s, the first half of the decade was bereft of any major transactions equal to the stature of its two 1989 divestitures. By no means, however, did the company retreat from pursuing expansion. Further investment opportunities were developed with CITIC, resulting in the formation of Power Pacific Corporation, which opened offices in Hong Kong in 1994 and Beijing in 1998. In 1996, Compagnie Luxembourgeosie de Telediffusion, which was indirectly controlled by Pargesa, merged with the broadcasting subsidiaries of Germany-based Bertelsmann, creating CLT-UFA, Europe's largest radio and television group. Another notable event was the CAD 180 million investment made by Power Corporation in Southam Inc., Canada's largest daily newspaper publisher.

NEW LEADERSHIP

In 1996, Desmarais relinquished his posts as Power Corporation's chairman and chief executive officer, ending an era of remarkable growth for the company. During Desmarais's tenure, Power Corporation's corporate assets had increased from CAD 165 million to CAD 2.7 billion, as net earnings swelled from CAD 3 million to more than CAD 200 million. The difficult task of equaling this record of leadership fell to Desmarais's two sons, Paul Desmarais, Jr., who was named chairman and co-chief executive officer, and Andre Desmarais, president and co-chief executive officer.

The Desmarais brothers did not shy from imprinting their mark on Power Corporation, as they guided the company toward its 75th anniversary and the beginning of the 21st century. Shortly after they inherited control over the company, Paul, Jr., and Andre sold the company's interests in Southam for CAD 294 million. The following year the company, through Great-West Lifeco, paid CAD 3 billion for all of London Insurance Group, which controlled London Life Insurance, a Canadian insurance company with the largest sales force in the country. The acquisition made Great-West Lifeco the largest health and insurance company in Canada, employing more than 7,000 financial representatives.

As the 1990s drew to a close, Power Corporation appeared to have made a seamless transition from one generation of management to the next. The Desmarais brothers proved themselves capable leaders during their first five years in charge, and, after selling Power Broadcasting's Canadian radio and television assets in 1999, possessed the financial resources to galvanize their reputations during the 21st century. The company, during its 75th anniversary year, represented one of Canada's elite business enterprises, supported by stable and diverse holdings in North America, Europe, and Asia. As Power Corporation entered the new century, consolidated assets eclipsed CAD 57 billion and net earnings exceeded CAD 500 million.

WORLDLY ENTERPRISE

The new century began with the meltdown of the U.S. technology sector. Investors large and small in the burgeoning industry would feel the pain of its collapse, the Power Corporation no exception.

On its own side of the border Power Corporation moved to take advantage of a more robust market. Investors Group Inc. purchased Mackenzie Financial Corp. in early 2001. The move solidified the company's leadership position in the Canadian mutual fund industry, Matt Ackermann observed in American Banker. The Canadian mutual fund market had climbed 12 percent in 2000 versus 2.2 percent in the United States.

Toronto-based Mackenzie ranked third in Canada with $21.1 billion in assets under management. Winnipeg-based Investors Group held $28.9 billion and AIM Fund Management, $23.3 billion. Investors Group outbid two other offerings, laying down $2.7 billion for Mackenzie, thus creating Canada's largest fund distribution network.

More trouble called on their neighbors to the south later in the year. The terrorist attacks that led to the destruction of the World Trade Center in New York City, on September 11, 2001, hit the American financial sector hard in terms of lives and dollars lost. Moreover, the shock waves spread globally, touching Great-West Lifeco as well. Consolidation in the industry had linked lives and countries like never before.

Great-West moved into the top spot among Canada's insurers in 2003 with its CAD 7.3 billion purchase of Canada Life, outmaneuvering Manulife Financial. Manulife had accumulated a 9.1 percent stake in its unsuccessful, and unwelcome, bid for Canada Life. In 2002, Manulife failed to close a merger with a major Canadian bank, but was expected to try again with the Canada Life option off the table.

"Great-West's ultimate owners, the Desmarais family, are also thought to be interested in moving beyond insurance and into banking. The patriarch, Paul Desmarais, already controls Investors Group, the country's largest mutual-fund company through his main vehicle, Power Financial Corporation, and through a series of holding companies," the Economist recounted in February 2003.

The Canadian government allowed mergers between insurers but not between banks. Bank-insurer alliances, though, appeared to be gaining a critical mass of support for approval. The combination was a formula for growth on both sides of the ledger.

Demutualization of the Canadian insurance industry had resulted in three large insurers: Manulife, Sunlife, and Great-West. The remaining insurers produced a fraction of the revenues of just one of the major companies, therefore, offering limited temptation as buyout candidates. Regulatory and economic restrictions made a merger between two of the big three unlikely, according to Reactions.

Great-West, meanwhile, expected to glean $290 million in postmerger cost savings, which included job cuts. The well-established Canada Life brand name would survive. Combined, the company's divisions included individual insurance and investment products, group insurance, and European reinsurance and investment, according to America's Intelligence Wire.

Power Corporation's overall performance, during 2004, drew peer recognition. Based on factors ranging from long-term investment value to social responsibility, the company ranked number one as rated by Quebec's CEOs. "In a time when corporate reputation is critical to a company's success, Canada's Most Respected Corporations survey matters more than ever," Jean-Pierre Desrosiers, managing partner, KPMG Montreal, said in a January 2005 Canada NewsWire release. "I think what impressed me the most about this year's survey is the overall tone of optimism and confidence in Canada's CEOs." KPMG sponsored the survey, which was the tenth annual interview of Canadian CEOs. Power Corporation ranked among the top 25 companies on a nationwide basis.

Power Corporation was also lauded by Peter C. Newman in a macleans.ca article. He called Power Corporation and Manulife global superstars of the financial sector. Power Corporation reported consolidated sales approaching CAD 27 billion in 2005.

Bertelsmann AG bought out its only outside shareholder, Groupe Bruxelles Lambert, in 2006, for EUR 4.5 billion. The investment firm held a 25.1 percent interest and had gained the legal right to demand a public offering, a move opposed by the head of the founding family. Group Bruxelles Lambert chose a compromise rather than open warfare to resolve the issue. "The market would have been aware that the family was against the I.P.O. and that the management was not keen on it, despite their legal obligation," Marc Debrouwer, a Brussels-based analyst, told the New York Times. The sale of stake in the media conglomerate, along with increased subsidiary income, resulted in a more than doubling of Power Corporation's 2006 third quarter profits compared with 2005.

In another media-related move, Power Corporation subsidiary Gesca increased its interest in Workopolis. A minority owner since 2002, Gesca increased its interest to 50 percent late in 2006. Torstar Corporation held the other half of Canada's top Internet-based career and recruitment business.

Carol I. Keeley

Updated, Jeffrey L. Covell;

Kathleen Peippo

PRINCIPAL SUBSIDIARIES

Gesca Ltee; Mackenzie Financial Corporation; CITIC Pacific Ltd. (4.6%); Power Financial Corporation (66.4%); Power Financial Europe B.V.; Pargesa Holding S.A.; Great-West Lifeco Inc. (70.6%); The Great-West Life Assurance Company; Great-West Life & Annuity Insurance Company; Investors Group Inc.; Canada Life Assurance Company; London Life Insurance Company; IGM Financial Inc. (55.9%); Power Technology Investment Corporation; Investment Planning Counsel Inc.