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Sustainability at Power Corporation

From left, André Desmarais, Paul Desmarais and Paul Desmarais, Jr. at the 1996 Annual Meeting of Power Corporation.

Positioning for Growth at Home and Abroad

1997–2008

Positioning for Growth 
at Home and Abroad

1990–2000

Power Corporation entered the 1990s with a solid cash position and was debt-free. It maintained its prudent approach, especially in the face of unsettled economic conditions.

In Europe, the Corporation continued to build upon the investment it had made in 1981 in Pargesa Holding SA, a Swiss firm, when Pargesa acquired the non-French assets of Compagnie Financière de Paris et des Pays-Bas (commonly known as Paribas). Pargesa sought to increase its equity in a small number of high-quality, diversified companies positioned to become global leaders in their respective markets.

At the same time, Great-West Life’s wholly owned subsidiary Great-West Life & Annuity Insurance Company emerged as a U.S. leader in employee benefits and retirement products. In Canada, meanwhile, Great-West Life and Investors Group became the largest companies in the Canadian domestic life and health insurance and mutual fund distribution industries, respectively.

The company also expanded its investments in communications and worked at solidifying the special, ongoing relationship with China that had begun in the late 1970s.

Great-West Life was strong in group benefits, disability insurance and individual life insurance policies. London Life, through its Freedom 55 Financial™ division, offered its own brand of investment, retirement and life insurance for individuals.

The acquisition introduced substantial marketing synergies and cost savings. It made Great-West Canada’s largest life and health insurance company. Power’s strategy was to acquire businesses and actively manage them to obtain operational efficiencies with increased scale while maintaining their distinct brand and sales organizations. Given successive acquisitions, Power was able to leverage the complementary distribution channels of its subsidiaries to create a sales framework with unmatched breadth and scale.

Focusing On U.S. Niche Markets

Coincident with its Canadian expansion, Great-West’s wholly owned subsidiary Great-West Life & Annuity was focusing on two important U.S. niche markets: employee benefits, including health care, for small- to mid-sized businesses, and retirement products for employees in the public/non-profit sector.

The opening of the U.S. marketing office in Denver, 31 October 1973. FROM LEFT: Jim Burns, Peter D. Curry, Colorado Governor John Vanderhoot, and Mayor William McNichol
The opening of the U.S. marketing office in Denver,
31 October 1973. FROM LEFT: Jim Burns,
Peter D. Curry, Colorado Governor John Vanderhoot,
and Mayor William McNichol

Great-West Life’s activities in the United States date back to the beginning of the 20th century, but they were not treated as a separate entity until much later. It was in 1979 that the formal process of splitting U.S. and Canadian operations began. In 1982, Great-West Life purchased a company that it later named Great-West Life & Annuity Insurance Company, and the transfer of its U.S. operations to its U.S. subsidiary was completed in 1992.

In 1998 and 1999, Great-West Life & Annuity further expanded its market position in the United States by acquiring the group health businesses of Anthem Health & Life Insurance Company, Allmerica Financial Corporation and General American Life Insurance Company. Following these transactions the number of Americans covered by the company’s health and retirement plans exceeded 4.6 million.

Great-West Life’s activities in the United States date back to the beginning of the 20th century, but they were not treated as a separate entity until much later. It was in 1979 that the formal process of splitting U.S. and Canadian operations began. In 1982, Great-West Life purchased a company that it later named Great-West Life & Annuity Insurance Company, and the transfer of its U.S. operations to its U.S. subsidiary was completed in 1992.

In 1998 and 1999, Great-West Life & Annuity further expanded its market position in the United States by acquiring the group health businesses of Anthem Health & Life Insurance Company, Allmerica Financial Corporation and General American Life Insurance Company. Following these transactions the number of Americans covered by the company’s health and retirement plans exceeded 4.6 million.

Forging Progress in China

Though it sold its interest in the Castlegar pulp mill in 1992, Power continued to develop investment opportunities with CITIC and contacts in Asia. Power Pacific Corporation, created for that purpose, opened offices in Hong Kong in 1994 and in Beijing in 1998. It soon joined with CITIC in the development of industrial real estate in the special economic zone of Pudong outside Shanghai and entered into a partnership with Bombardier Inc. and China National Railway Locomotive and Rolling Stock Industry Corporation (LORIC) to manufacture passenger rail cars in China.

In the late 1990s, the Chinese rail car manufacturing facility, owned by Power, Bombardier and LORIC, was awarded the first of many major orders for inter-city passenger vehicles. The order enabled the joint venture to go forward (the joint venture was subsequently sold in 2007). More significantly, Power acquired an equity interest in CITIC’s publicly traded conglomerate CITIC Pacific Limited, based in Hong Kong (the investment was subsequently sold in 2015). After years of relationship building with Chinese government officials and businesspeople, Power’s patience was bearing rewards.

Marking 75 Years

Power Corporation’s Annual Report on its 75th Anniversary.
By the time of its 75th anniversary, and the end of the century, Power Corporation had become a truly international company, with strong and diverse holdings in Europe, the United States, Canada, and Asia. Net earnings were more than $500 million and the market capitalization of its subordinate voting shares exceeded $4 billion. Consolidated assets stood at over $57 billion. More importantly, it had passed smoothly into the hands of a new generation of business leaders who shared the vision and dynamism of their father.
List of Officers and Directors
1999

By the turn of the millennium, Power’s clearly defined strategy for its financial services business in Canada was to build a diversified financial services organization that would span a variety of life, health and retirement insurance plans under the Great-West Lifeco banner and that could also offer investment planning services and a host of investment products through Investors Group. Power quickly came to appreciate that distribution networks that complemented one another provided for greatly expanded reach with virtually no incremental costs. That was a key imperative as both Investors Group and Great-West Life grew through acquisitions.

The head office of Mackenzie Financial
Fountain in the courtyard of Power Corporation's head office in Montréal
Fountain in the courtyard of Power Corporation's head office in Montréal

Acquiring Mackenzie Financial

In 2001, Investors Group Inc. (subsequently renamed IGM Financial) acquired Mackenzie Financial Corporation, which was a highly regarded mutual fund company with an outstanding record of growth and performance. The $4.2 billion deal made IGM Financial Canada’s largest mutual fund organization, with more than two million clients, managed assets in excess of $74 billion, and a suite of exceptional product offerings and distribution channels. Three years later, IGM Financial grew yet again by purchasing a 75 per cent interest (later increased to 97.5 per cent) in Investment Planning Counsel, Canada’s fifth largest financial planning firm. In both instances, synergies created through the transactions spurred revenue growth but also allowed for significant cost savings.

Acquiring Mackenzie Financial

In 2001, Investors Group Inc. (subsequently renamed IGM Financial) acquired Mackenzie Financial Corporation, which was a highly regarded mutual fund company with an outstanding record of growth and performance. The $4.2 billion deal made IGM Financial Canada’s largest mutual fund organization, with more than two million clients, managed assets in excess of $74 billion, and a suite of exceptional product offerings and distribution channels. Three years later, IGM Financial grew yet again by purchasing a 75 per cent interest (later increased to 97.5 per cent) in Investment Planning Counsel, Canada’s fifth largest financial planning firm. In both instances, synergies created through the transactions spurred revenue growth but also allowed for significant cost savings.

An artist’s rendering of the IGM Financial Building in Winnipeg

While these acquisitions increased IGM Financial’s product portfolio it also expanded the channels through which these products could be sold. Investors Group had its own internal sales force which sold directly to individuals. (By the end of 2015, the sales force had grown to ● consultants.) Mackenzie Financial sold its products through a 30,000-strong network of brokers and independent financial planners authorized by the company. Investment Planning Counsel also dealt directly with financial planners, though on a smaller scale than Mackenzie. When it came to combining Investors Group, Mackenzie and Investment Planning Counsel, it was their mix of different distribution networks that made for such a solid strategic fit. As a result of these acquisitions, the distribution networks managed by Mackenzie and Investment Planning Counsel increased Investor Group’s market reach exponentially.

While these acquisitions increased IGM Financial’s product portfolio it also expanded the channels through which these products could be sold. Investors Group had its own internal sales force which sold directly to individuals. (By the end of 2015, the sales force had grown to ● consultants.) Mackenzie Financial sold its products through a 30,000-strong network of brokers and independent financial planners authorized by the company. Investment Planning Counsel also dealt directly with financial planners, though on a smaller scale than Mackenzie. When it came to combining Investors Group, Mackenzie and Investment Planning Counsel, it was their mix of different distribution networks that made for such a solid strategic fit. As a result of these acquisitions, the distribution networks managed by Mackenzie and Investment Planning Counsel increased Investor Group’s market reach exponentially.

The landmark beacon atop the Canada Life Building in Toronto.

Adding a Third Powerhouse Brand

Subsequent to its 1997 acquisition of London Life, Great-West Lifeco further secured its position as Canada’s leading life and health insurance operation in 2003 by acquiring Canada Life Financial for $7.3 billion.

Similar to the situation with IGM Financial, Great-West Life’s expansion gave it a multifaceted product portfolio and also added diversity to its distribution capabilities. Great-West Life was strong in group benefits, disability insurance and individual life insurance. London Life, through its Freedom 55 Financial™ division, offered its own brand of wealth management solutions and life insurance for individuals.

Canada Life, at the time of its acquisition, also offered insurance and wealth management products and services in Canada, the United Kingdom, Isle of Man and Ireland. Great-West Life had Gold Key, its own general agency sales force. London Life had its own sales force, and Canada Life had relied on independent brokers, who had no affiliation with any one insurance company, to sell its products. That created three different but complementary distribution channels for Great-West Lifeco.

Adding a Third Powerhouse Brand

Subsequent to its 1997 acquisition of London Life, Great-West Lifeco further secured its position as Canada’s leading life and health insurance operation in 2003 by acquiring Canada Life Financial for $7.3 billion.

Three 
Powerhouse Brands

This resulted in three powerhouse brands – Great-West Life, London Life and Canada Life – operating under Great-West Lifeco. With these new capabilities, Great-West Lifeco served more than 11 million Canadians.

A New CEO Takes the Helm at Power Financial

A number of significant management changes took place during this period as well. In 2005, the Board of Directors of Power Financial Corporation appointed Mr. R. Jeffrey Orr as President and CEO. Mr. Orr was formerly President and CEO at IGM Financial and had started his career in 1981 at Nesbitt Burns. While at Nesbitt Burns he worked on a number of transactions for Power, including the creation of Power Financial and numerous, subsequent financial transactions and therefore developed an intimate knowledge of the Power group of companies. In 1999, he was named Chairman and Chief Executive Officer of Nesbitt Burns, a position he held until joining IGM Financial as President and CEO in 2001. Mr. Orr is credited with guiding Power’s portfolio companies through the most significant economic downturn since the Great Depression. He also led Power Financial through several major acquisitions, including Putnam Investments and Irish Life

Also in 2005, Robert Gratton became Chairman of the Board of Power Financial Corporation, after having served as President and CEO since 1990. In 2008, he retired as Power Financial Chairman and, in 2014, did not stand for re-election as a Director for Power Financial and Power Corporation. In recognition of his outstanding contribution to the Power group of companies over many years, the Board of Directors of Power Corporation appointed him Deputy Chairman Emeritus in May 2014.

During Mr. Gratton’s 15-year tenure as President and CEO, Power Financial’s annual compound total return to shareholders was 23 per cent and market capitalization grew from $1.5 billion to $23.5 billion. Prior to joining Power, Mr. Gratton was appointed in 1982 as the Chairman, President and Chief Executive Officer of Montreal Trustco where he increased the firm’s value by a factor of 13.

List of Officers and Directors
2005
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Great-West Lifeco Buys Putnam Investments

Also operating under Great-West Lifeco was Great-West Life & Annuity Insurance Company (subsequently rebranded Great-West Financial), which provided health insurance and retirement products in the United States. While Great-West Financial was growing organically, the decision was made to secure an acquisition in the U.S. market in line with Great-West Lifeco’s strategy of broadening its financial services business in the United States. This strategy was consistent with Power’s plans to gain a larger presence in that country.

Great-West Lifeco Buys Putnam Investments

Also operating under Great-West Lifeco was Great-West Life & Annuity Insurance Company (subsequently rebranded Great-West Financial), which provided health insurance and retirement products in the United States. While Great-West Financial was growing organically, the decision was made to secure an acquisition in the U.S. market in line with Great-West Lifeco’s strategy of broadening its financial services business in the United States. This strategy was consistent with Power’s plans to gain a larger presence in that country.

In 2007, Great-West Lifeco acquired Putnam Investments, a world-class mutual fund brand based in Boston, for $4.6 billion. At the time of the acquisition, Putnam, which was established in 1937, was one of the oldest investment managers in the United States, with more than $225 billion in assets under management, approximately 3,000 employees, and overseas offices in London and Tokyo.

The Putnam brand was one of the strongest financial brands in the country and the acquisition represented a unique opportunity for Great-West Lifeco to assume a strategic position in the U.S. market for mutual funds and institutional assets. At the time of the acquisition, Putnam was experiencing challenging headwinds, later exacerbated by the financial conditions of 2008-2009. Through strong management and leadership, Putnam’s performance eventually strengthened and today is on a solid foundation to resume its former financial and growth performance.

A year later, Great-West Lifeco sold off its healthcare unit in the United States for an after-tax gain of $649 million, because of the consolidation taking place in the sector and concerns that the unit could not provide the scale required for long-term success.

In both Canada and the U.S., growth through acquisition gave Power a formidable mix of complementary capabilities such as both group and personal life insurance, mutual fund offerings and personalized financial advice, along with a sales and advisor network among the largest in North America.

Refocusing on Global Reach

Pargesa’s primary holding, Groupe Bruxelles Lambert (GBL), continued to modify its portfolio with an eye to investments in companies that had global market reach and thus larger foundations on which to build and grow their businesses.

Suez, formerly Suez Lyonnaise des Eaux, merged with Gaz de France in 2008 to create GDF Suez, one of the largest gas groups in the world, particularly in the liquefied natural gas sector, while putting its water and waste management operations into Suez Environnement.

GBL’s shares in CLT-UFA (which as a result of a merger became RTL Group, Europe’s leading broadcast company) were exchanged in 2001 for 25 per cent of Bertelsmann AG, then one of the world’s foremost media companies. The transaction allowed the Pargesa group’s media interests to evolve into a diversified global media business. In 2007, GBL sold its stake to Bertelsmann’s controlling shareholder.

In 2006, GBL made a new investment in Lafarge, a world leader in the cement and building materials sector, and a year later it bought a stake in Pernod Ricard, a global leader in wines and spirits.

Launching the Sagard Funds

Power Corporation also made private equity, hedge fund and venture capital investments which included the creation of Sagard SAS in Europe in 2002 and of Sagard Capital Properties in the United States in 2004. Though income to the Corporation from these investments can fluctuate from year to year, they have produced attractive returns over the long term. Also in 2004, Power Corporation became one of the first Canadian companies to be granted a Qualified Foreign Institutional Investor (QFII) licence by the Chinese government, which allowed it to invest directly in Chinese public companies.

Managing the 2008 Global Financial Crisis

In 2008, a global financial crisis arose the likes of which had not been seen since the Great Depression. Equity markets dropped pervasively, bond markets froze and blue chip financial firms such as Bear Sterns and Lehman Brothers disappeared virtually overnight. Governments launched stimulus packages and corporate bailouts. Central banks pushed interest rates to historic lows and kept them there. In Europe, the sovereign debt crisis threatened to decimate national financial infrastructures as the spectre of default loomed.

While Power did have investments in Europe through Pargesa, the foreign debt crisis did not have a meaningful impact on either Pargesa or Power. The strength of Pargesa’s balance sheet had largely protected it from sovereign debt issues.

While the global financial crisis had a negative impact on the Corporation’s net income and share price, companies in the Power group performed solidly during the severe economic downturn.

Power and its companies maintained their philosophy of prudent management during the global financial crisis and while the Corporation’s net income and share price were negatively impacted, the group performed solidly during the severe economic downturn.

As one example, Great-West Lifeco was one of only two publicly traded life insurance companies in North America not to be downgraded during the crisis, and maintained its dividend.

Common strengths at IGM Financial and Great-West Lifeco have allowed both companies to weather the current period of low interest rates. In the case of Great-West Lifeco specifically, given the nature of its business, low interest rates can pose a particular challenge. However, the company has successfully managed its operations so as to meet its ongoing pay-out obligations through a consistent cash flow.

The performance of the Power companies was achieved not by actions they took when the crisis occurred. Rather, their performance endured because of the quality of their businesses and products coupled with Power’s long-standing business strategy: maintain strong financial mpositions, adopt prudent investment practices and a long-term perspective, and maintain active involvement and oversight through the boards of directors of its group
companies.

Most importantly, strong performance was also driven by highly talented management teams at each of the subsidiary companies who were supported by senior Power executives who sat on their boards of directors.

List of Officers and Directors
2008

Once the crisis began to pass, new initiatives were launched to regain a trajectory of growth where opportunities existed.