Hollinger International will hold an emergency meeting on Tuesday to weigh its options after press mogul Conrad Black agreed to sell his controlling stake, a source close to the situation said.
"The big issue is should they fight this or not," the source said on Monday.
Black announced a surprise deal on Sunday to sell control of his scandal-ridden newspaper business to David and Frederick Barclay -- 68-year-old identical twin brothers who own London's Ritz Hotel and The Scotsman newspaper -- only hours after he was sued by his own company for $200 million and sacked as chairman.
The deal may still be scuppered by separate lawsuits filed against Black by the company, the U.S. Securities and Exchange Commission (SEC) and a private investor.
He resigned as chief executive in November after the board uncovered $32 million in unauthorized payments to him and other executives -- payments Black now says were authorized, based on new evidence he says he has found.
The Barclays agreed to buy from Black a 78 percent stake in Toronto-based holding company Hollinger Inc, which in turn controls 73 percent of Hollinger International voting shares.
The Hollinger International board will consider its options at Tuesday's board meeting, but it is unclear if it could stop the deal. Hollinger Inc is a separate company, and since it is based in Toronto, it may be beyond the reach of U.S. regulators.
UK regulators and competition authorities may have some oversight since the deal would constitute a change of control in the Telegraph, England's best-selling broadsheet newspaper.
Hollinger International declined to comment.
The SEC's lawsuit gives Richard Breeden, a former SEC chairman who is heading a special investigation by the Hollinger International board, status as a special monitor if the investigation is impeded. But it was not apparent on Monday if the Barclays' purchase would trigger that clause or if Breeden would be empowered to block the deal.
The weekend's dramatic developments wreaked havoc with the strategic review by investment bankers Lazard LLC, which people familiar with the situation said last week was set to begin seeking expressions of interest and sending out information to bidders for various Hollinger International assets.
Those hoping to buy Hollinger assets may soon be disappointed: The Barclays' ultimate aim is to consolidate ownership of Hollinger, simplify its convoluted structure, and eventually take the company private, sources told Reuters.
"The long-term aim of this is to privatize everything," one source said. "The Barclays brothers are not going to sell ... they have always wanted to own a major national newspaper in the United Kingdom."
Hollinger's assets include the Telegraph, the Chicago Sun-Times, the Jerusalem Post and the Spectator magazine. Some would-be bidders are holding out hope that choice assets such as the Telegraph are still on the block.
"We're considering our options," said a source close to an interested party. "It's far from certain -- given the complex web of holdings, litigation and investigations -- what leverage the Hollinger International board might have to block the deal, but it's clear they're not happy with the situation as it stands."
Northern & Shell, the publishing company controlled by Richard Desmond that owns one of Europe's largest printing presses with Hollinger, and Daily Mail & General Trust, publisher of the tabloid Daily Mail, have expressed an interest in buying the Telegraph. The Daily Mail declined to comment, and Northern & Shell did not return calls seeking comment.
"Clearly the Barclays have made a very good move," said the source close to the interested party. "The price seems to be reasonably low, but there are some unknowns."
