Billionaire Desmarais Brothers Retire in Power Corp. Revamp

(Bloomberg) -- Billionaires Andre Desmarais and Paul Desmarais Jr. are stepping down as co-chief executive officers of Power Corp. of Canada, part of a reorganization that sent shares of one of the country’s largest financial services firms surging.

The Desmarais brothers, sons of the family who built up the Montreal-based company, will stay on as chairman and deputy chairman. Jeffrey Orr, current CEO of the Power Financial Corp. unit, takes the top job at a new entity combining the two main units of the insurance and asset management company.

“The reorganization is a natural step that reflects our evolution from a diversified holding company into one that is primarily focused on financial services,” Andre Desmarais, 63, said in a statement Friday.

The media-shy Desmarais family, with its business and political connections across the globe, sits near the top of Canada’s establishment. The family was estimated to be worth C$8.38 billion ($6.35 billion) in 2018 by Canadian Business magazine, seventh among the country’s wealthiest families.

By combing the two companies, Power Corp. says it will simplify its corporate structure, cut costs and unlock value. The effect was immediate. Shares of Power Corp. surged as much as 8.5%, heartened also by a 10% increase in the dividend, while Power Financial was up almost as much as 11%. Both were the biggest intraday increases in a decade.

Low Rates

Orr described the move as one lever in an ongoing strategy that also includes potential acquisitions in the U.S., investments in financial technology startups, and combining Canadian life insurance entities under one brand.

Businesses such as Great-West Lifeco Inc. and money manager IGM Financial Inc are part of an industry that’s faced relentless pressure on fees from ETFs and robo advisers, and from declining interest rates. Neither Power Financial nor Power Corp. have regained their pre-2008 financial crisis highs, unlike the country’s big banks.

“Canadian banks have been able to take advantage of their booming individual, or retail, businesses in Canada to substantially grow their earnings and balance sheets,” Paul Desmarais Jr., 65, said in a May 2018 speech marking the family’s 50-year involvement in Power. “By contrast, during the same 10-year period, the individual businesses of the three major Canadian life insurance companies – including our subsidiary Great-West Lifeco – have more or less stagnated.”

As part of the reorganization, Power Financial shareholders will receive 1.05 Power Corp. subordinate voting shares, or C$33.50, and some cash for each share they own. That’s little more than the C$32.77 Power Financial traded at Thursday’s close. Power Financial is currently controlled by Power Corp.

“The story here is one of evolution and continuity,“ Orr told analysts on a conference call. “They will continue to be active,” he said of the Desmarais brothers.

Son’s Roles

The shake up makes no mention of Paul Desmarais III, 37, son of Paul Jr. and a senior vice president of Power Corp., who oversees the company’s startup strategy, which includes majority-owned robo adviser Wealthsimple Inc. He is also the executive chairman of Sagard Holdings, a subsidiary of Power Corp. which has invested in public and private equity since its founding in 2005 and has moved into private credit last year.

Orr, 61, said in an interview that Paul III and Olivier Desmarais, the son of Andre and also a vice president in the company, will remain in their current capacity. The family will continue to control the company through its Pansolo Holding Inc.

The family’s empire was founded by the late Paul Desmarais Sr., who started in business after inheriting a fleet of buses in a mining town. He parlayed a series of transportation company takeovers into a firm that would acquire newspaper, radio and financial-services properties. The brothers last year parted with La Presse, the Montreal daily their father had bought five decades earlier.

Global Reach

Over the years, Desmarais built a web of European holdings together with Albert Frere, the late Belgian industrialist who was one of Europe’s richest men. Guests at the family estate 300 miles north of Montreal have included former French President Nicolas Sarkozy and former U.S. President George H.W. Bush. Andre, who started an experimental farm a few years ago as a philanthropic project, has said he was inspired by his friend the late David Rockefeller.

Paul Jr. and Andre took over in 1996, presiding over several acquisitions and fast growth in the followig decade. The global financial crisis and the era of record low interest rates that followed put a brake to it. In his speech last year, Paul Jr. touted the merits of family-controlled businesses and vowed to return to an era of growth.

“Our family is committed to use the experience of the previous 50 years to help us build the next half century,“ he said.

--With assistance from Paula Sambo and Doug Alexander.

To contact the reporters on this story: David Scanlan in Toronto at dscanlan@bloomberg.net;Sandrine Rastello in Montreal at srastello@bloomberg.net

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net, Jacqueline Thorpe

©2019 Bloomberg L.P.