Source : Globe & Mail

Observers say CEO Robert Prichard told Star publisher to go after he resisted demands to slash costs, GORDON PITTS writes

John Honderich was pushed out as publisher of the Toronto Star because he resisted making the deep cost cuts that Torstar Corp. chief executive officer Robert Prichard demanded, observers in the media and investment industries say.

The conflict went to Torstar's board of directors, which backed Mr. Prichard, and agreed that Mr. Honderich would have to go, the sources say.

Mr. Prichard personally delivered the board's decision before Christmas to Mr. Honderich in the publisher's fifth-floor maple-accented corner office at 1 Yonge Street in Toronto.

It came as a complete surprise to Mr. Honderich, insiders say, and the two men were working out an orderly transition when news of the publisher's impending departure appeared in Saturday's Globe and Mail.

The confrontation ended an internal struggle between Mr. Prichard, Torstar's CEO for the past two years, and Mr. Honderich, publisher of Canada's largest newspaper for 10 years and a member of one of the five families which have controlled Torstar in a voting trust for half a century.

It leaves Mr. Prichard, 54, a former president of the University of Toronto, with a freer rein to impose the degree of budget cuts and the strategic direction which he feels will ultimately boost the stock price at Torstar.

A number of Toronto Star employees have believed that Mr. Honderich was protecting the paper from the stringent cost-cutting advocated by Torstar's management, led by Mr. Prichard.

Mr. Prichard's concern about the bottom line of the Star is well founded, says an analyst who follows Torstar. Among the duties of the next publisher, the analyst says, improving the Star's margins has to be at the top of the list.

The departure of Mr. Honderich, 57, is "more than just a middle manager of a company leaving, that's for sure," the analyst said.

The part of the company most alarmed by this prospect is the editorial department, which is Mr. Honderich's home base, where he worked for much of his 28 years at the paper, and where he is viewed with respect, if not always love.

"The fear is that whoever replaces him will have an agenda to take resources out of the newsroom," said Dan Smith, chief steward in the editorial department for the Southern Ontario Newspaper Guild (SONG), adding that one of the first tests comes this fall, as SONG negotiates a new labour contract.

Torstar stock closed yesterday at $29.75 on the Toronto Stock Exchange, up 21 cents.

Mr. Prichard said yesterday he and Mr. Honderich had agreed not to comment further on the publisher's departure. He said the resignation has no effect on Torstar's broader strategy, which entails revenue growth and improved margins in all its major publishing businesses. He said Mr. Honderich supported these goals for his own division, the Toronto Star.

Beyond bottom-line considerations, observers say Mr. Prichard's challenge is to find a growth strategy beyond its traditional core of the Toronto Star and Harlequin Enterprises, its publisher of escapist fiction for women.

"These are two businesses in secular decline," one analyst said. "Fewer people read either books or newspapers."

That's not to say Mr. Prichard will do anything revolutionary, although the company's balance sheet is strong and throwing off lots of free cash, the analyst said. The CEO is expected to implement gradual expansion, filling in holes in Eastern Canada and expanding Torstar's presence in the West.

Several strategic options loom:

Craig Media Inc. is up for sale, which might allow Torstar to pick up the Southern Ontario television licence it so badly covets. The feeling within the company is that it was "robbed" in 2002 when the CRTC awarded a Toronto TV licence to upstart Craig, instead of Torstar, which made the initial licence application.

There may be opportunities to build up the lucrative community newspaper franchise, with the potential unwinding of newspaper assets owned by Hollinger International Inc., in the wake of owner Conrad Black's legal and liquidity crises.

The remnants of the Hollinger interests in Canada include a parcel of community papers in British Columbia, which would fit well with Torstar's healthy Metroland chain in Southern Ontario.

The vehicle for such acquisitions would be Black Press Ltd., the Western community newspaper chain controlled by entrepreneur David Black (no relation to Conrad Black). Torstar is already a partner, having bought about 20 per cent of Black Press. "If and when Mr. Black wants to sell more, we will buy more of it," Mr. Prichard said.

He said it is possible that as Black Press acquires more newspapers, Torstar would help out by taking an increasing stake in the company, although it would depend on how Mr. Black financed the purchases.

None of these external moves would have been impossible with Mr. Honderich in place. But these are two huge personalities in a single company. Also, Mr. Honderich faced an increasingly inhospitable board, with his own family locked in conflict with another of the five reigning families, the Thalls.

Another factor is the politics of the two men. Mr. Honderich is a small-l liberal in the tradition of the paper's legendary publisher of the 1920s, 30s and 40s, Joe Atkinson, whose principles still guide the paper. Mr. Prichard is considered more conservative -- although he points out that he has had the Atkinson Principles cited prominently on the Torstar Web page.

Despite these differences, one analyst felt the two men could have maintained a professional relationship. But he noted that the company had evolved from the hands-on family management of 50 years ago to the stewardship of outside professional management. Mr. Honderich's leaving was simply the last stage in that evolution.

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