Wednesday, July 30, 2008

Canadian taxpayers to fund of 10% of BCE purchase price, each and every year

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?


Dr Mike said...

So this is how the big boys play.

And this is how the Gov`t helps the big boys play.

Life in Canada is like one big sandbox & in every sandbox there tends to be a least one bully.

In this country`s case there are two , Big business/Private equity & the gov`t----one cannot gain control without the other.

When they work together , it is the little guy taxpayer & the little guy investor who takes the bite in the arse.

So in the case of BCE , here we go again.

The investor gets the shaft as dividends have been suspended---he also has to pay any capital gains as the business of BCE as a public entity ceases to exist.

The taxpayer loses all the tax from this outfit way into the future.

Flaherty & company could not care less---he will gain his one-time windfall on the capital gains portion as BCE winds down--hell , this is almost as good to him as selling off Ontario Hydro.

Politicians tend to be nearsighted & don`t seem to care about the future.

Unfortunately , this will probably never change.

Dr Mike Popovich.

Anonymous said...

Flaherty is either an idiot a fool or a pirate aiding in the pillage of Canadian tax payers.


Anonymous said...

Mulroney, Thatcher, Reagan: privatization of taxpayer-funded public utilities and services.

Harper & Flaherty: privatization of publicly-held companies.

Funnelling the wealth of ordinary people into the pockets of the already wealthy few has always been the goal of any conservative government.

Why anyone but the very rich ever vote for these theives and liars is a mystery to me.

Robert Gibbs said...

Harper Fails To Meet Own Deadline Rules For Disclosing Gifts

The Canadian Press

July 30, 2008 at 6:21 PM EDT

OTTAWA — It seems Prime Minister Stephen Harper has failed to meet his own conflict-of-interest deadline for declaring gifts he received.

Mr. Harper has not publicly declared gifts received since last fall despite being required to do so under new conflict guidelines introduced by his government.

But an official [falsely] insisted Mr. Harper is in compliance with the rules because all gifts are in the process of being disclosed or still being appraised to establish their value.

Under the new conflict rules in the Conservatives' public accountability legislation of 2006, all gifts cabinet ministers receive valued over $200 must be reported within 30 days.

Mr. Harper hasn't reported anything since a present he received during an official visit in October of 2007.