Friday, June 20, 2008

Bell Deal is a Go

Without a doubt, the privatization story around BCE is the biggest telecom story in Canada this year, and today was the big day in terms of whether the deal will be a go or not.

I'm bit after the fact, but at 4:30 today, the Supreme Court of Canada announced a unanimous ruling in favor of the deal, which led to a huge sigh of relief for just about everyone in Canada except BCE's bondholders and Telus. You can read about the highlights here, and you won't have to look far across the Canadian telecom landscape to find further commentary. BCE's bondholders are a story unto themselves, and a recent lower court ruling in Quebec came out in their favor, which was an unexpected obstacle as the deal was nearing closure. The Supreme Court ruling trumps this, though, and now the deal faces pretty clear sailing for being finalized by month end.

Telus would be disappointed in that they would be the logical suitors for BCE if the privatization option failed. At this point, there's no turning back for BCE to remain a public company. The income trust route was killed off late last year, and as the stocks of BCE's rivals - namely Rogers and Telus - continue to outperform them, privatization became the most viable option for long term survival. There is certainly recent precedent out there for telcos doing this, so it's not such a hare-brained strategy. You may recall that last year, Telus played the white knight card as a pre-emptive option to going private, but that move came late and fizzled quickly.

Much like the way SBC acquired its parent AT&T, Telus would love to do the same to BCE. If the deal had failed today, BCE would be in a need of a Plan B, and given our foreign ownership restrictions, a domestic buyer would need to be found. With BCE being so dominant, we don�t have many other big carriers up here, and Telus would be the only one in a position to step up and effectively take over their largest competitor. That sure would make for an interesting scenario with all kinds of regulatory implications, but it�s moot now.

Once the deal closes, Canada�s most widely-held stock will be no more and a new page will be turned in our corporate history. Investors will have one less blue chip company to own, and one of our most storied and loved companies will pass on into something else. For all our complaining about corporate concentration, BCE was a very illustrious company and world class on many levels. Others can give you the history lesson better than me, but suffice to say, that BCE will be missed.

Of course the new owners have grand plans to re-invent the company and restore it to glory, but it won�t ever be the same again. No doubt BCE will be broken up, but it�s anyone�s guess if the new consortium of owners will make the right moves. This story has a few more chapters to go, and I�m sure it will someday become a textbook example of how to take a company apart and � hopefully � put it back together again.

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