Rich 100: Fallen giants

The mighty Asper and Péladeau families face hard times.

Anyone who thinks their investment portfolios have been hard hit by the current financial crisis and the looming economic slowdown should take a look at two families who were once bona fide members of the Canadian Business Rich List. Recent stock market losses have decimated the fortunes of both the Aspers and Péladeaus, pushing the families off our annual list of the wealthiest Canadians. Given time, the net worth of most investors will bounce back, but the sons of media moguls Izzy Asper and Pierre Péladeau have an uphill battle to fully restore their respective family fortunes.

Take Leonard Asper, the CEO of Canwest Global Communications Corp. (TSX: CGS.A), who took over the Winnipeg-based company from his father, Izzy, in 1999. In the past year, his family’s wealth has plummeted to an estimated $341 million, down nearly 60% from $833 million. Likewise, Pierre Karl Péladeau, the CEO of Montreal’s Quebecor Inc. (TSX: QBR.B) who took over from his legendary father, Pierre, has seen his family’s riches drop to an estimated $415 million — down more than 46% from $777 million.

The shares of Canwest have fallen about 90% in the past year, while Quebecor’s stock has dropped roughly 56% over the same period. But there are other factors beyond the recent stock market weakness that may make it difficult for the families to rebuild their coffers. For instance, both Canwest and Quebecor are heavily exposed to the advertising market, which has also started to slide in recent months.

More unsettling, the founders of both companies were not afraid of loading up debt that may be difficult for their sons to deal with under current financial circumstances — or, for that matter, anything but the rosiest financial outlook.

Asper is currently grappling with Canwest’s staggering $3.6-billion debt — including a complex debt arrangement held by Goldman Sachs that is associated with the 2007 acquisition of Alliance Atlantis, the specialty film and television company. “Canwest is highly levered with little financial flexibility,” wrote Scott Cuthbertson, an analyst at TD Newcrest in a recent report. “It is arguably ill prepared to weather a prolonged economic slowdown.” But not everyone is pessimistic about Canwest’s future. David Asper bought 1.6% of the company’s shares in November, while Fairfax Financial Holdings (TSX: FFH) has also been buying and now has a 12.5% stake.

Péladeau won’t have an easy ride, either. While Quebecor recently reported strong returns from its cable division, Péladeau recently announced he was taking the top job at the company’s Sun Media division in an attempt to turn around the newspaper chain’s sagging returns. It’s not the first time Péladeau has taken control of a troubled division. In 2004, he took the reins at Quebecor World, which at the time was the world’s largest commercial printer. That didn’t work out so well, and Quebecor World is currently in bankruptcy protection after failing to refinance its $2.4-billion debt earlier this year.

It’s clear Péladeau and Asper have much to do to live up to the expectations of their shareholders, who must be hoping that the sins of the fathers — who saddled their companies with debt in the first place — are not completely visited upon the sons.