Tuesday, December 2, 2008

Where's the corrupt Mark Carney when we need him?

Surprise Surprise. Today we learn; “BCE's lobbying won't change minds at KPMG “ But it’s THE WOLRDS LARGEST EVER LBO for gawd’s sake.......why cant KPMG simply fudge the numbers? This is a job for Mark Carney!!!! Mark will fudge anything. Just like he manufactured his bogus tax leakage argument in order to assist BCE in its goal to become a leverage buyout and pay no taxes as opposed to an income trust and pay $800 million more in taxes.

BCE's lobbying won't change minds at KPMG


Here's the guts of the argument BCE Inc. chief financial officer Siim Vanaselja is making to his former partners at KPMG as he furiously lobbies for a takeover of his company: You accountants have changed the rules, and that's not right.

BCE delivered another round of shock therapy to investors last week by revealing KPMG could not deliver a favourable solvency opinion on BCE, once the company took on $32-billion of leveraged buyout debt. If BCE can't pass that solvency test, the deal is dead.

The argument coming from Mr. Vanaselja, who is making his pitch with BCE director and former PricewaterhouseCoopers head Thomas O'Neill, is that KPMG is being far too conservative in estimating what BCE would be worth in the worst of worst-case scenarios, one in which the phone company goes bust and must be liquidated. The pair are apparently looking for support for their views from rival accounting firms, and getting some joy on this front.

KPMG partner Susan Glass and her team give BCE failing marks on this front because the company's assets - valued at the same multiples as beaten-down peers such as Telus - aren't worth as much as its debt. This snapshot on values is being taken, obviously, during the ugliest market meltdown of our time.

What's hugely frustrating to many BCE shareholders - and likely causing ulcers for Mr. Vanaselja, a former KPMG tax partner - is that this valuation gap has existed since the buyout was first announced in June, 2007.

What's changed is KPMG's attitude towards liquidation values, and the importance it attaches to this measure in doing its solvency test.

Now, KPMG isn't talking about its methodology. But according to sources close to the situation, the accounting firm is telling BCE that times have changed, credit markets are in a state of unprecedented upheaval, and that requires a more conservative approach.

Let's pause to consider that logic, and the numbers.

In simple terms, KPMG is saying that if the wheels came off at BCE, and the company shut down, the valuation of its Bell Mobility division would be the same skinny multiple to EBITDA that other wireless companies command right now as going concerns. No takeover or scarcity premium for Bell Mobility is baked into this valuation. That's an extreme view.

DBRS ran the number on this kind of doomsday forecast in October, and said the value of the assets didn't meet the debt. DBRS managing director Paul Holman wrote: "This base case default scenario results in a decline in enterprise value of BCE ... to roughly $34.4-billion or 33 per cent lower than the $52-billion enterprise value when the privatization was announced on June 30, 2007."

In an interview, Mr. Holman said: "In a default scenario, we show total assets would be less than total liabilities and senior lenders would be covered but the unsecured and subordinate lenders would not be covered.

"KPMG may have been using going-concern valuation multiples that were approaching ours," he said. But DBRS deemed the liquidation scenario, with no premium attached to the value of any unit, to be so far outside the realm of possibility that it gave an investment-grade rating - triple-B (low) - to a large portion of BCE's debt. The focus for the credit rating agency was BCE as a going concern, with orderly asset sales factored in as a possibility if debts needed to be serviced at a time when cash flow slumped.

Stepping back from BCE for a moment, it's worth noting that lots of Canadian firms are doing business right now with debt loads far larger than the multiples contemplated under the Ontario Teachers' Pension Plan buyout of the country's largest phone company.

So, will the BCE heavyweights be able to sway the KPMG accountants?

It seems unlikely. This is a high-profile takeover, and KPMG has now put its reputation on the line. While its tests may be conservative, the numbers are what they are: The BCE buyout doesn't pass the most stringent of solvency tests.

© 2008 The Globe and Mail

1 comment:

Dr Mike said...

Was it not our not-so-brilliant Finance Minister who anointed Carney??

Is this not the same Finance Minister who is now single-handedly responsible for the destruction of the "New" Conservative party.

If 1 + 1 = 2.

Dr Mike Popovich.