The Ontario Teachers Pension Plan was preparing to shake up the board of Maple Leaf Sports and Entertainment Ltd. and replace long-time chairman Larry Tanenbaum after the apparent failure of takeover talks in late November with two of Canada's largest communications companies.
The giant pension fund, which owns 80 per cent of MLSE and put the stake up for sale earlier this year, became frustrated that negotiations between potential buyers Rogers Communications Inc. and BCE Inc. and Mr. Tanenbaum had reached an impasse. So Teachers' opted to proceed with what one insider called "the other plan."
That plan, sources said, was an attempt to remove Mr. Tanenbaum from the chairman's role and recruit new independent directors with sports and media experience at MLSE, which owns the Toronto Maple Leafs, the Raptors and a handful of cable networks.
The threat was never made directly to Mr. Tanenbaum, according to sources. But Teachers, which announced Nov. 25 it was taking its MLSE shares off the auction block, let it be known through various channels that it was going to be making a number of changes at the top of Canada's largest sports and media company.
"Once the deal was pulled we weren't going to carry on with the status quo … people understood that there were going to be a number of governance changes," said one person close to Teachers.
A person close to Mr. Tanenbaum said the Toronto developer was not aware of the pension fund's new strategy. In addition, sources disputed whether the pension plan would have been able to replace him because of legal protections he enjoys under a decades-old shareholders agreement and his strong ties with sports leagues.
Whether or not Teachers' had the authority, within days of its extraordinary manoeuvre, Mr. Tanenbaum made an overture to a BCE executive shortly after Nov. 25 that pushed the takeover deal to the finish line last week.
According to people familiar with those talks, Mr. Tanenbaum removed a costly demand for broadcast rights at MLSE that had stalled talks for weeks.
People close to Rogers and BCE confirmed that Mr. Tanenbaum's concession eliminated a long-standing obstacle.
Mr. Tanenbaum could not be reached for comment.
Teachers' eleventh-hour tactic marks unusual deal brinksmanship by the pension plan, which has been quiet on the takeover field in recent years.
Sources said the power play was the culmination of years of frustration with Mr. Tanenbaum, who enjoys unusual leverage at MLSE despite holding only 20 per cent.
The pension fund had been seeking to exert more control over MLSE since May when it acquired an additional stake in the company from Toronto-Dominion Bank, raising its holding to 80 per cent. The increase gave the pension fund more ability to influence takeover talks, which had been languishing since it kicked off an auction for the company in March.
Despite its additional equity control, however, talks were frequently bogged down.
Negotiations had reached such an impasse by November that the pension fund told Rogers and BCE it would terminate the auction process at the end of the month.
In mid-November, sources said, Teachers put Mr. Tanenbaum, and officials at Rogers and BCE on notice that it would end talks within a week. When the week was up Nov. 23, Teachers gave the suitors another 24 hours.
"When they told us they still didn't have a deal, we pulled the plug," said one person close to Teachers.
Within days of the pension plan's decision, Rogers and BCE were able to strike an agreement with Mr. Tanenbaum that gives him an unusual right to remain as MLSE's chairman for as long as he wishes, according to people familiar with the sale agreement.
Mr. Tanenbaum also retains his prestigious positions as a director on the boards of the National Hockey League and the National Basketball Association. His stake in the company will be increased by 5 per cent to 25 per cent, as part of the deal announced Friday, which saw Teachers' agree to sell its 80-per-cent stake to Rogers and BCE for $1.32-billion.
Grant Robertson