Quebecor World Inc.: The Dividend That Could Not

by: George Gutowski

Quebecor (NASDAQ:IQW) declared a dividend on preferred shares when it released terrible earnings. The press release dated Nov 7 said:

The Board of Directors of Quebecor World Inc. declared today a dividend of CA$0.3845per share on Series 3 Preferred Shares and CA$0.43125 on Series 5 Preferred Shares. The dividends are payable on December 1, 2007 to shareholders of record at the close of business on November 19, 2007.

On Nov 26 Quebecor World announced dividends won't be paid on the series 3 and series 5 preferred shares because there isn't enough capital to satisfy the Canada Business Corporations Act. At almost the same time a controversial refinancing plan seems to have stalled out.

Quebecor followers all know there is difficulty. We can all safely assume that the refinancing package was a game of hardball. But when the board declares a dividend and then twelve business days later yanks it, citing oblique regulatory concerns, you know the board has lost it. The non payment of a declared dividend when there is sufficient cash has governance ramifications all of its own. You do not declare dividends and then treat them as a negotiating tool.

The company withdrew a refinancing plan last week. The board is playing poker. It does not seem that the shareholder interests are equally represented. Everyone is waiting for a white knight or something to show up and buy this situation. The lawsuits and governance issues are sufficient to muddy the waters so as to deter a take over. And maybe that was the plan after all?