Don’t be fooled. The purchase price of BCE is not $52 billion, it is $8 billion.
Ontario Teachers’ and its three US partners are acquiring BCE in a “leveraged buyout”. This means using other people’s money to acquire BCE. There are three sources of other people’s money being used in this instance, as follows:
= BCE itself
= BCE common shareholders
= Canadian Taxpayers
The whole scheme is very easy to understand. A necessary ingredient is to have a compliant board of directors who are willing to agree to allow BCE to borrow $32 billion in new debt on top of BCE’s existing $12 billion in debt. such that the company becomes a junk bond credit. This reduces the equity value of the company down to $8 billion. Which ostensibly is being funded by the Purchasers.
Roughly $1 billion of the $8 billion ends up coming from BCE shareholders themselves, as the compliant board agreed to modify the terms of the deal, such that the Purchasers’ receive the last six months of accrued and unpaid dividends, rather than BCE common shareholders. This foregone dividend has a value of $1 billion. It is “found money” for the purchasers.
Lastly, there are Canadian taxpayers. A large portion of the value of BCE in the hands of the purchasers is that the company can be structure so as to pay no Canadian taxes. This is achieved by the massive interest payments that are required to service $44 billion in debt . These interest payments are tax deductible, and therefore shelter BCE from paying taxes. This has a cost to Canadian taxpayers of $800 million a year versus alternative transactions that were presented to BCE’s board.
So ignoring the dividend heist of $1 billion, this $800 million per year in foregone taxes, means that Canadian taxpayers are paying the equivalent of 10% of the purchase price of BCE, each and every year. In ten years, the purchase price will have been fully paid for by Canadian taxpayers. The beneficiaries of this tax scheme are:
Ontario Teachers’ Pension Plan
Providence Capital of the US
Madison Dearborn Capital of the US
Merrill Lynch Capital Partners of the US
Don’t expect a thank you note.
Instead, expect more permanent layoffs ( beyond the 2.500 announced yesterday) and higher service costs (beyond the 15 cent text messaging increase announced last week).
Time for a few answers from Canada’s “leadership”.
Where is the PM on this”? The Finance Minister? The Industry Minister? The Labour Minister?
Wednesday, July 30, 2008
Posted by Fillibluster at 8:56 AM