Thursday, March 29, 2007

Will Bell Canada Be Taken Private?

Quite the story in today's Globe & Mail. The Globe reports that LBO heavyweight KKR is in preliminary discussions about taking BCE - Bell Canada Enterprises - the holding company for Bell Canada - private. This is being talked up as a $30 billion deal, which would make it the largest privatization in Canada's history.

A lot would have to happen for this to work, with two of the key issues being foreign ownership restrictions of Canadian telcos, and the large ownership stakes held by pension funds. The details are fascinating, and the article explores these pretty well, so I'm not going repeat things here.

The key thing for me is that Bell has been lagging its peers for far too long, and shareholders must be getting frustrated watching Telus and Roger deliver far better returns. Michael Sabia has been at the helm for a while now, and just can't seem to move fast enough to restore Bell to its pristine image as one of Canada's best companies. Mark Evans speculates further on what this deal may mean for Mr. Sabia in his post today.

With telecom reform looming here, and the Income Trust option now dead, there are many implications in this story for Bell Canada and their options moving forward. They have certainly made some good moves recently to stay focused on their core businesses, but the downside of being so big is the difficulty of moving quickly and responding to changing market conditions. It is not hard to argue that the Canadian telecom market lacks real competition, and this news will certainly highlight the holdback created by limited foreign investment. The pool of domestic alternatives to the incumbents is small, and not getting any bigger. Foreign entries or foreign investment will likely be the only way to change the status quo.

Stranger things have happened. Who would have expected SBC to take over AT&T? My view was that if AT&T could be taken out of the market, than anything was possible. In Canada, this could well be one of those scenarios. If the sentiment from the Globe's reader comments is any indication, then I'd say that many would welcome the change, but along with is a sense of futility that this is yet another sector of our economy that is falling in American hands.

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