bout de papier, Vol. 7, No. 1 (1989), pp. 39–41
The Brass Ring — Power, Influence and
the Brascan Empire by Patricia Best and
Ann Shortell, Random House, Toronto,
1988, 369pp. $29.95
Reviewed by Mitchell Sharp
The history of Brazilian Traction, Light and Power Company (in 1969 the name was changed to Brascan) from its beginnings at the end of the 19th century until the great pull-out from Brazil in 1979, is covered in nine pages of this 373 page book.
I do not fault the authors for this summary treatment of a unique Canadian multinational enterprise. Their primary interest was not in how the Light began, flourished and finally fell victim of circumstances beyond its control. What they researched and recount so brilliantly begins when Brascan finally sold the last of its public utilities to the Brazilian government and, flush with cash, became a take-over target, and how it was converted into the cornerstone of the financial empire of Peter and Edward Bronfman, sons of Allan Bronfman and cousins of the unan ance needs.
Marsh & McLennan Limited
P.O. Box 3190, Station C Ottawa, Ontario K1Y 4J4 Tel.: (613) 725-5050
Telex: 053-4726 Fax: (613) 725-1108 Seagram Bronfmans — Charles and Edgar.
What was unique and extraordinary about Brazilian Traction was not only that the majority of the voting shares were held by Canadians, but that this Canadian-owned company provided public utilities — tramways, electric power, telephones and gas — to the industrial heartland of Brazil, centred around Rio de Janeiro and Sao Paulo.
The story of how the Bronfmans took over Brascan is full of financial derring-do. So were the beginnings of this company, although of a different kind. The original initiative did not come from Canadians. It came from two Brazilians and an American engineer named Pearson who, towards the end of the 19th century, obtained a franchise to build a tramway system in Sao Paulo. Unable to raise the necessary capital in New York, they travelled on to Montreal where they were more successful. The Canadian financiers, led by Sir William Mackenzie, the Canadian railroad builder, were more prepared to take risks than their American counterparts, which in itself was remarkable. The tramway franchise in Sao Paulo was followed by similar franchises in Rio de Janeiro and other cities.
Tramways require electricity. Steam and huge hydro plants were constructed. Electricity replaced gas in city street lighting.
1200 Baseline at Merivale Ottawa, Ontario K2C 0A6
(613) 225-1260 bout de papier Vol. the Light moved into the marketing of gas for commercial purposes as well as electricity. During the expansion, municipal telephone franchises were acquired and incorporated into the Companhia Telefonica Brazileira. When I was first associated with the company in the late ’50s, Brazilian Traction was the largest enterprise in South America, with around 50,000 employees.
As such, it was the natural target for the ardent Brazilian nationalists. Having been accustomed, as Deputy Minister of Trade and Commerce, to hearing from ardent Canadian nationalists that Canada was the victim of foreign ownership, I was shocked when the company I was working for was referred to as the Canadian octopus, the tool of American economic imperialists.
The fact that the ownership was Canadian, rather than American, no doubt helped the Light to withstand these political attacks so successfully and for such a long period. The Light was a model of how a foreign-owned company should conduct itself locally. Insofar as possible, the Light preferred to deal with the Brazilian government direct and on its own behalf as part of the Brazilian community without the intervention of the Canadian Ambassador.
What eventually weakened Brazilian Traction was not the pressures from the Brazilian nationalists, it was rampant inflation in Brazil and the slowness in obtaining from the regulatory authorities compensating adjustments in the rate schedules for the public utility services. One day in the late 1950s, there appeared in the English language newspaper in Rio the text of an invitation to a party to celebrate the 10th anniversary of the host’s application for telephone service.
The telephone services, which consisted of a series of municipal franchises (in itself a handicap to efficiency) was the first to be transferred to the Brazilian government. Trams (called bondes because they were originally financed by the issuance of bonds, a contribution of the Light to the Portuguese language) were replaced by buses. Given the difficulties, under inflationary conditions, of raising capital to finance the expansion of Hydro electric capacity, the company negotiated the sale of its remaining public utility assets in 1979 and withdrew.
Reflecting on this history, I wondered if modern Canadian financiers like Peter and Edward Bronfman will make as great a contribution to contemporary society as those original Canadian financiers made to the development of Brazil. What motivated them, when Pearson presented his tramway project, was no doubt the prospect of profit. (The authors of The Brass Ring call Sir William Mackenzie “rapacious”.) Their profit depended in turn upon their success in providing new and useful services to the people of Brazil. The prospect of profit also motivates modern financiers like the Edper group. But it looks to outsiders as if investment decisions involved in take-overs and mergers are related not so mauch to the provision of additional goods and services, or even to the provision of goods and services at lower cost, but to the skill of the investors in buying and selling assets already in existence.
Brascan was a unique target for a takeover. It had disposed of all its public utility assets in Brazil. In other words, it had terminated the business for which it had been established. The shareholders could have been paid off in cash. Instead, Brascan directors decided to perpetuate their control by launching a take-over bid for Woolworths. Edper, the Edward and Peter Bronfman private investment fund, decided to bid for Brascan. After an exciting and tortuous struggle, Edper emerged the winner.
The list of firms that Edper-Brascan-Hees acquired outright and in which the group made substantial investments covers nearly every aspect of Canadian business activity: Noranda, London Life, Labatt, Westmin, Scott Paper, Trilon, Royal Trust, Great Lakes group, Royal Le Page, Wellington Insurance, Norcen Energy, North Canadian Oils.
There are 13 numbered chapters in The Brass Ring and a concluding chapter which begins with these words: “A lingering question hangs over the Edper-Brascan-Hees empire like industrial polution. People suspect something. On Bay Street there are still whispers of a pyramid built on paper that will someday collapse.” These questions are discussed pro and con, with this summing up: “Three years ago the fashion was to believe that Edper was a malevolent face; Edper survived the slander. Now the fashion is to lionize the group as a model of corporate perfection. This is also wrong-headed.” What is obvious is that they have made an indelible mark on the way Canada does
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Originally published in bout de papier, Vol. 7, No. 1 (1989), pp. 39–41. Read the rest of this issue →
