For those who think the battle for BCE is finished, over, kaput, that Telus has got it sewn up, that a defeated Henry Kravis is about to crawl sullenly back to his Manhattan hovel, we have two words for you: Scott Hand.
Inco's chief wanted to create an all-Canadian gorilla in mining by buying Falconbridge. Telus's Darren Entwistle wants to do the same in telecom by taking over BCE. There are major differences between the former's unsuccessful quest and the latter's nascent one, but also some uncomfortable similarities.
Inco lost Falconbridge because neither company could turn away a clean cash bid in favour of a marriage that offered equal doses of promise and uncertainty. Mr. Hand and his partners tried the flag-waving routine, the appeals to patriotism, just as Mr. Entwistle is doing now. They did everything but join hands and belt out Stompin' Tom's greatest hits.
None of it helped, because when it comes to takeovers, directors don't listen to their nationalistic little hearts. They listen to the law, and the law in Canada is pretty clear: corporate boards exist to serve the shareholders. Not the employees or management, not Mel Hurtig or Dominic D'Alessandro. It's the owners of the company who matter.
Now put yourself in the shoes of a BCE director, and imagine the following: It's auction day. The suits from Goldman and RBC Dominion come into the boardroom with the results. Telus bids the most, $44 a share, half of it in stock. But there are strings attached: the competition bureau has to let them keep Bell Canada's wireless customers. If it doesn't, Telus is still interested, but the price would have to be renegotiated. It's going to take at least four months, maybe six, to find out.
The Canada Pension Plan-led group, with U.S. partners, comes in at $42.50. It's all cash. There are no major conditions and no competition problems. The deal can close in 90 to 120 days. Lawyers are already doing the paperwork. But they won't wait long for an answer, because the Iranians are talking about nukes again, inflation is on the march and the bond market is getting jittery...
What would you do? Take the money in hand? The Darren in the bush? Throw up your hands and leave the decision to shareholders?
Despite the happy talk from Mr. Entwistle about how a Telus-BCE combo is best for shareholders, bondholders, customers, taxpayers, bankers, brunettes, vegetarians - have we forgotten anyone? Oh yes, kitten lovers - he knows that this scenario could be his undoing. In an interview with the The Globe and Mail on Tuesday, he invoked the Inco name at least twice and, in essence, pleaded for a better deal from regulators than Mr. Hand got. European Union apparatchiks dragged their heels for months on the Inco-Falco proposal, a delay that gave plenty of time for other bidders to plan their (successful) assault.
"Clearly, we're in a world where private equity can pursue a deal and consummate it within a matter of weeks," Mr. Entwistle said. "And I think our regulatory authorities need to be similarly responsive in terms of their views ... so that we can enjoy competitive parity when we are facing a financial buyer.
"Let's say hypothetically that the competition bureau would approve Telus acquiring BCE with the type of remedies that we are postulating. But the decision comes too late, it takes too long to review ... and private equity has already secured the support of the Bell board. I think that would be really sad."
Sad for him, maybe, but not so sad for Michael Sabia, who can't help but be humiliated by the prospect of a Telus takeover. When he got the top job at Ma Bell, its stock market value was about $17-billion and Telus's was $5.2-billion. And now they want to take over us? It's like having your kid brother steal your girlfriend.
That might explain the apparent rush by BCE to wrap up the auction soon. The faster it goes, the more pressure it puts on Mr. Entwistle because of his late start - he has been talking to officials in Ottawa for only two weeks.
His proposal is to keep both the Bell and Telus wireless assets, and his "remedy" is that the feds give cheap spectrum to Quebecor or Manitoba Telecom or others to add new competition. Nice idea, but it's too complicated to be done quickly. Ottawa isn't even expected to decide on the rules for next year's wireless spectrum auction until the fall. Can the competition bureau let this deal fly on the basis of a new competitor that doesn't yet exist, on the assumption the feds will follow the Telus solution?
The private equity guys, by the way, don't want to talk about this. They'd prefer to leave the impression that they're in retreat, that Telus has already won it, in hope of lulling Mr. Entwistle into a false sense of security. Don't believe it. Telus has many advantages in this war. Time isn't one of them .
© The Globe and Mail
