Thursday, February 14, 2008

BCE a lesson in M&A froth

Today’s Globe makes the generic observation concerning KCP: “May be one of a raft of buyout targets that are unable to cope with heavy debt loads in the face of the slowing economy.”

Which gives new meaning to Goldman Sachs: (BCE’s financial advisor) in a kiss-off letter to BCE’s Board June 29, 2007:

“We express no opinion as to the impact of the transaction on the solvency or viability of BCE or the ability of BCE to pay its obligations when they become due.”

Goldman Sachs also gives new meaning to the term Love ‘em and leave ‘em.

Except in the case of BCE it’s Lever ‘em and leave ‘em

KCP a lesson in M&A froth
Investors bid loans down to distress levels
Globe and Mail
February 14, 2008

Standard & Poor’s: on BCE’s resultant credit worthiness:

“The multi-notch downgrade reflects our view that BCE no longer possesses an investment grade financial policy, given the likelihood that the [Teachers’] LBO will be finalized in the near term.

On a pro forma basis, the company will have a highly leveraged capital structure, weakened credit measures, and significantly reduced cash flow-generating capability owing to a dramatic increase in debt and associated heavy interest burden.”

Moody’s Investor Services: on BCE’s resultant credit worthiness:

“With book debt expected to increase by more than 300%, the company’s risk profile will be profoundly affected by the proposed Teachers’ transaction, and its rating could be adjusted by several notches.”

Standard & Poor’s: Impact of lower rated debt on BCE’s cost of capital:

“Because an investment-grade rating indicates a safer investment, a speculative-grade company with lower ratings must pay investors more for the greater risk they take when buying non investment-grade debt. Lower credit ratings result in a correspondingly higher cost of capital.”

Telecommunications Act: Explicit policy objective:

“To promote the efficiency and competitiveness of Canadian telecommunications carriers”

Standing Committee on Industry, Science and Technology: April 2003 Report

“A higher cost of capital slows the rate of capital investment and, in turn, the roll out of competitive services

A cost of capital differential of approximately 1.18% exists between Canada’s incumbent telephone carriers and Canadian cable companies. This incremental cost equates to about $1.46 per month per cable subscriber.”

Darren Entwistle, CEO of Telus’ on BCE’s LBO: Censored, since:

"We did insist on a clause that Telus would not be able to disparage other alternatives available to the board, such as private equity" said BCE chairman Richard Currie.

Ted Rogers, CEO of Rogers Communications on BCE’s LBO:

"I believe we should just keep doing what we're doing and don't get diverted by all this high-falutin stuff going on — big suits walking around having meetings all the time." Ted Rogers has no time for the private equity players who have approached his company to partner on a bid for rival BCE Inc. and on other deals in recent months. In fact, the head of Rogers Communications Inc. said Monday: "We told them all to go to hell."


Dr Mike said...

This whole thing would serve Flaherty right--his whole Tax Fairness Plan has resulted in a large number of acquisitions using debt which resulted in lower taxes being paid.

A great deal of debt always runs the risk of producing some level economic destabalization both from the overall business standpoint & from a tax revenue standpoint.

What was he thinking or was he not thinking at all or was someone else doing his thinking for him.

The promotion of Mark Carney ahead of the natural choice says it all--it appears Mr Carney was indeed the brains behind the operation & received his long sought-after reward.

Now instead of one incompetent in charge , we have two----it gives me a queazy feeling all over , which no matter how much I squint my eyes , just won`t go away.


Robert Gibbs said...


Mattel has been calling Flaherty.

They want to use his brain as silly puddy.

At the same time, REITs have been trying to fill all the vacancy in his head.

Dr Mike said...

Robert ,
These guys in top gov`t positions sure live in a world of their own--they do not have a clue what the regular guy on the street needs .

There is a serious lack of consistent thought when it comes to policy making as it pertains to you & I----they flip & flop around like a fish out of water & are just about as effective.

I truly think that If they had a brain fart it might be an improvement.