The CRTC is holding pubic hearings on February 25, 2008 into the purchase of BCE by Teachers and 3 US Private Equity funds, Providence, Madison Dearborn and Merrill Lynch. CRTC approval is required for the deal to proceed.
The deadline for submissions to the CRTC is by the end of tomorrow (January 24, 2008). It is very easy to make a submission, as described below.
Any party wishing to do so, can express their views to the CRTC in advance.
The Teachers’ transaction will turn Canada’s largest telecom company into a junk bond issuer with no access to public markets, from what is presently Canada’s most widely held public company with broad access to capital via its public status and investment grade credit ratings.
This junk bond transformation into a narrowly held private company is not a recipe for success in a capital intensive industry that is experiencing rapid technological change. This is not the way to reduce the cost of telecom services or enhance service offerings for Canadians. This is not why Bell Canada was granted an effective oligopoly license. Government granted oligopolies should be two way streets. These new buyers are mere financial buyers and not industry players per se.
It is estimated that the leveraged buyout of BCE by these private equity players will result in the loss of $793 million in annual taxes to Ottawa, given the deductibility of interest from taxable income and the elimination by the Harper government of the 15% withholding tax paid by foreigners on leveraged buyout loans. Foreigners are the source of virtually all of the BCE leveraged buyout loans, coming from groups like Citbank, Deutsche Bank and the Royal Bank of Scotland.
It is obvious that the leveraged buyout is a marginal proposition for the buyers, as there is rumour hat the will have to spin off core assets to pay down the mountain of debt and the deal only makes sense if the Bell bondholders take an $800 million hit. All, in order that management and their advisors can experience a $250 million+ personal pay day from accelerated stock options, retention bonuses and free carried interests in the newly privatized BCE and advisory fees.
If you feel this is not a good outcome for a company that is regulated by the CRTC, then it is very easy to let your voice be heard. Simply fax (819-994-0218), mail or upload your letter to the CRTC via the following instructions.
It is very obvious that BCE and Teachers are out “trolling” for letters in support of this transaction, as there are submissions from a number of groups like Kids Help Phone and others who are closely tied to BCE and Teachers, like Carol Stephenson of the Ivey School of Business, Michael McCain of Maple Leaf Foods, the Canadian Chamber of Commerce, and the Ontario Chamber of Commerce. All of these parties are closely linked economically to either Teachers’ and/or BCE.
Meanwhile the CRTC’s job is to uphold the policy objectives of the Telecommunications Act and the Bell Canada Acts, whose explicit policy goals are:
Bell Canada Act:
The works of the Company are hereby declared to be works for the general advantage of Canada.
7(c) to enhance the efficiency and competitiveness, at the national and international levels, of Canadian telecommunications;
7(d) to promote the ownership and control of Canadian carriers by Canadians;
How does the Teachers’ deal achieve these ends, when there was an alternative that served everybody’s objectives , including consumers, whose interests the CRTC is mandated to protect?
Other interventions can be viewed here.
Here are two questions that were asked at BCE’s June 2007 Shareholders Meeting that were obviously dismissed by the Board and management of BCE, but are probably representative of where most well informed Canadians are on this issue:
Question: Unidentified Woman: Concerning the privatization of BCE, I would like to make the following points: Given many small, individual shareholders are retirees, who have invested their savings in BCE for their save and attractive dividend; Given many shareholders have bought their shares more than 20 years ago, they will take a big tax hit should the privatization of BCE go ahead. Since the original cost of their shares cannot be adjusted for inflation — it has been significantly lowered because of stock splits and spin offs — there will result an over-inflated capital gain taxed at a higher marginal rate plus additional tax brought on by clawbacks. Furthermore, in some cases, they may be required to make advanced tax payments to governments in the form of provisional accounts. Given that the public pension funds are exempted from capital gains tax, they can disregard fiscal consideration and push for the privatization of BCE in order to get a higher prize for their BCE shares — an action detrimental to the small, long-term shareholders, who do have to pay capital gains tax and will incur an extra tax burden because of clawbacks. My question is for Mr. Sabia: How much weight are you prepared to give to the very real concerns of long-term shareholders in the face of the privatization of BCE, which, personally, I don’t think will enhance the value of my shares. Thank you.
Question: Stanley Goldstein: Long time shareholder of the company. I’d like to pick up the comment of [the] shareholder earlier. Does the oversight committee, management, have a plan in place a pro-public ownership plan and if so, might you share with us the essence of its component parts. I ask this because you mentioned in the beginning in your the speech about the changing landscape, about privatization, etc. But the transfer of the ownership of a telecom company is not like the transfer of ownership of a concessionaire of the hot dog stand at Bell Centre. There’s easements, rights of way, spectrum, Section 7 of the telecom act, there’ll be regulatory review, there’ll probably be parliamentary review, we see winds of change in the country, but icons of Corporate Canada transferring to foreign ownership. And I ask this question because as someone who’s been around the industry for a long time, I expect the regulatory process will be long and protracted, and some of the conditions of the transfer of ownership might be exacting and will impact the cash flow expected by the buyer. And so we might still be here next year, talking about this issue, and where will that leave the shareholders? And so therefore, I come back to the question, about having in place and sharing with us a pro-public ownership plan. Thank you.
Wednesday, January 23, 2008
Posted by Fillibluster at 11:10 AM