Blogs & Comment

BCE stands for Board Can't Execute

When opining about the proposed BCE privatization, thelast thing anyone should do is make firm predictions. Nevertheless, it’s looking like this deal is dead. After some 20 months of twists, turns, sharp corners and speed bumps, this oversized Bell Canada service van just got its wheels blown out by KPMG and a little thing known as a solvency valuation.
So it’s worth asking, Just who the heck was driving? The entire prolonged privatization process was badly managed from the start. Whether it was the controversial bidding process, the aborted merger discussions with Telus, or the lawsuit with the bondholders that went right to the Supreme Court for an 11th hour decision, nearly every step of the way, something was always going not quite as planned. To my mind, that suggests something was wrong with the plan in the first place.
The irony, of course, is that after all of this rigmarole, BCEas a company is almost certainly better off not being privatized. Operating without the need to service an extra $32 billion in debt, especially in these markets, will give the executives quite a bit more flexibility to run the company and stay competitive.
But that probably doesn’t mean too much to BCE’s long-suffering shareholders. Assuming this deal does not somehow miraculously coalesce by Dec. 11, shareholders should be taking a long hard look at the board of directors. After all, they were the people that kept backing former CEO Michael Sabia’s meek attempts at improving shareholder valueand that is where this all started, if you can cast your mind back far enough. Sabia’s now gone, and telecom veteran George Cope is finally getting a crack at running Bell, but it’s foolish to think he should be reporting to the same board.
News reportssuggest that under the old board’s direction, the more drastic asset sales that had been planned by the new owners, led by the Ontario Teachers’ Pension Plan, would be “off the table”. Reinstate the dividend, maybe buy back some shares, hope that placates shareholders. (Notice there’s nothing in there about merging with Telusat this point, snowballs have a better chance in Hell.)
But in no way should shareholders be placated. I’m sure that more than a few of them were steaming at this remark by chairman Dick Currie in the morning paper:

There’s not much one can say about it, in terms of anger or exhaustion. We did the very best we could do all the way through, said Mr. Currie, former president of Loblaw Cos. Ltd. As far as I am concerned, the board has done a superb job under very difficult circumstances, and if the deal doesn’t go through, it is not because of a lack of trying.

If BCE shareholders hadn’t stopped reading and thrown the paper across the room, this paragraph at the end of the story probably made them feel at least a little better:

…a number of BCE directors are expected to step down from the board at the next annual meeting, if the takeover does not play out. Mr. Currie did not reveal his plans, except to say he wants to ensure the company is on sound footing.

The bottom line, however, is the same as it ever was: BCE needs to become a more competitive, better run company that can show it knows how to operate as a 21st Century telco. If this is not a catalyst for serious change, you have to wonder what would be. But the fact that it’s taken so many years for it to only come back around to this same challenge is a damning indictment of the people that were supposed to looking out for investors all alongthe board.