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BCE stands for Board Can’t Execute

Andrew Wahl — Fri, 28 Nov 2008 18:32:03 +0000

When opining about the proposed BCE privatization, the last thing anyone should do is make firm predictions. Nevertheless, it’s looking like this deal is dead. After some 20 months of twists, turns, sharp corners and speed bumps, this oversized Bell Canada service van just got its wheels blown out by KPMG and a little thing known as a solvency valuation.

So it’s worth asking, Just who the heck was driving? The entire prolonged privatization process was badly managed from the start. Whether it was the controversial bidding process, the aborted merger discussions with Telus, or the lawsuit with the bondholders that went right to the Supreme Court for an 11th hour decision, nearly every step of the way, something was always going not quite as planned. To my mind, that suggests something was wrong with the plan in the first place.

The irony, of course, is that after all of this rigmarole, BCE as a company is almost certainly better off not being privatized. Operating without the need to service an extra $32 billion in debt, especially in these markets, will give the executives quite a bit more flexibility to run the company and stay competitive.

But that probably doesn’t mean too much to BCE’s long-suffering shareholders. Assuming this deal does not somehow miraculously coalesce by Dec. 11, shareholders should be taking a long hard look at the board of directors. After all, they were the people that kept backing former CEO Michael Sabia’s meek attempts at improving shareholder value—and that is where this all started, if you can cast your mind back far enough. Sabia’s now gone, and telecom veteran George Cope is finally getting a crack at running Bell, but it’s foolish to think he should be reporting to the same board.

News reports suggest that under the old board’s direction, the more drastic asset sales that had been planned by the new owners, led by the Ontario Teachers’ Pension Plan, would be “off the table”. Reinstate the dividend, maybe buy back some shares, hope that placates shareholders. (Notice there’s nothing in there about merging with Telus—at this point, snowballs have a better chance in Hell.)

But in no way should shareholders be placated. I’m sure that more than a few of them were steaming at this remark by chairman Dick Currie in the morning paper:

“There’s not much one can say about it, in terms of anger or exhaustion. We did the very best we could do all the way through,” said Mr. Currie, former president of Loblaw Cos. Ltd. “As far as I am concerned, the board has done a superb job under very difficult circumstances, and if the deal doesn’t go through, it is not because of a lack of trying.”

If BCE shareholders hadn’t stopped reading and thrown the paper across the room, this paragraph at the end of the story probably made them feel at least a little better:

…a number of BCE directors are expected to step down from the board at the next annual meeting, if the takeover does not play out. Mr. Currie did not reveal his plans, except to say he wants to ensure the company is on sound footing.

The bottom line, however, is the same as it ever was: BCE needs to become a more competitive, better run company that can show it knows how to operate as a 21st Century telco. If this is not a catalyst for serious change, you have to wonder what would be. But the fact that it’s taken so many years for it to only come back around to this same challenge is a damning indictment of the people that were supposed to looking out for investors all along—the board.

Belus calling…

Jeff Sanford — Thu, 27 Nov 2008 18:42:02 +0000

It was only Monday that BCE stock rocketed almost 10% on news that CitiGroup would be the recipient of US$20 billion in bailout funds from the U.S. Treasury.
As the lead lender on the deal to acquire BCE, the smart thinking was that the massive leveraged buyout of BCE spearheaded by Ontario Teachers’ Pension Plan was far more likely to go ahead as a result of the bailout, so investors piled in.
But such is life in these tempestuous times that those most recent BCE investors have been seriously burned by a little-discussed clause in the contract—the deal had to pass an accountant-administered solvency test, which BCE couldn’t hurdle—and that has now likely scuttled the deal.
It’s a remarkable turn of events for what has been called the largest private equity deal in history and come to define the 2005-06 LBO boom in a way the RJR Nabisco acquisition by private equity giant KKR did in the LBO boom of the late ’80s.
Over its some 20-month long journey the BCE acquisition has wound through a Canadian court challenge and one of the worst downturns in the post-war history of markets. That it might go down on an obscure clause few were talking about (and one that seemingly came out of nowhere) seems almost appropriate in these desperate times. Who knows what to think about anything these days?
The acquisition has not officially been deep-sixed, but it looks like the banks will use this as an excuse to walk away from it. So, what does it mean that this deal seems to be done? Well, the Canadian dollar seemed to take a hit on the news, and Canadian investors in this long-time “widows and orphans” stock have been hammered, piling some more bad news on what is now a massive heap of negative sentiment in markets. But on the bright side, should it fail the banks and pension funds financing the deal—organizations already hurting from the meltdown in financial services—can walk away from a deal they weren’t that interested in anymore. (TD stock was up on the news).
As well, the new CEO of BCE, George Cope, can go ahead and restructure the company as he sees fit, without all the paper shuffling with Teachers’. With lots of cash on the books, BCE may actually pay out some nice dividends now
that the deal has fallen through.
But what is most interesting is that speculation has already picked up about a possible merger with Telus. The story that just won’t die is meandering into a whole new chapter.
John Henderson, telecom analyst with Scotia Capital has just released a report on that possible merger and suggests such a deal would result in a “32% value creation” for both sides and $10 billion in merger synergies.
A merger would also help fund growing pension obligations and would lead to the creation of a “Canadian Champion.” And for all these reasons and others, Henderson assigns a “60%-70%” odds that the Competition Bureau will approve of Belus.
All-in, Henderson is setting a $30 target on BCE shares and $44 for Telus.

SpinVox: an outsider’s view of the Canadian wireless industry

Andrew Wahl — Fri, 05 Sep 2008 14:10:16 +0000

In case you didn’t see it on CBO’s homepage, I posted a column earlier this week on SpinVox, the UK-based company that hosts a voice mail-to-text conversion service for mobile phones—but wants to expand into other areas. Canada, believe it or not, is an important proving ground for the service, especially since they have had limited traction with U.S. carriers.

I interviewed SpinVox founder and CEO Christina Domecq a few weeks ago while she was in town to talk to Rogers and Telus, two of three carriers in Canada that offer the service (SaskTel is the third). “We’re still waiting for Bell Canada to hurry up,” she told me. “Some carriers are faster than others, have a little less bureaucracy.” That may be an understatement.

But Domecq did have nice things to say in general about Canadian wireless carriers—they are her customers, after all. Although prices are high in Canada, she thinks the carriers do embrace innovation as fast as nearly any in the world, save northern Europe. Their size helps: they have the purchasing power for new handsets and services that smaller carriers in the world do not. And to their credit, they received SpinVox’s proposals warmly. “They were much more open to a young U.K. business than they were in the U.S.” SpinVox is a slick application, but it made me wonder if Canadian businesses are more easily impressed by technology with an international flavor than they are of anything homegrown—until it is proven elsewhere, of course.

Also, Domecq did note that carriers everywhere are not aggressively rolling out new applications and services, because it’s an expensive process not only technically, but in the marketing and customer support that goes along with it. “It’s hard in this economic climate, though. It’s not getting easier,” she said. And any application that needs to run on a specific type of handset is at a disadvantage, because the carriers aren’t rolling out as many new phone models either anymore. Again, it’s too costly. SpinVox is fortunate that its service works on any phone.

So what makes Canada a good market for SpinVox? We pay for voice mail (for now–competition from the new carriers might change that), so we’re more willing to pay to make voice mail easier, and we leave the longest voice mails of any country in the world. (Domecq isn’t sure why that is, but I figure it’s because Canadians go out of our way to sound polite.)

At any rate, it was interesting to hear a global perspective on the Canadian wireless industry.