Mark Evans

BCE’s Early Xmas Gift

Nothing like a pension fund (and a partner) to take a non-core asset off your hands AND give you a lot more money for it than many people expected. Clearly,, BCE CEO Michael Sabia made Santa Claus’ list of people who’ve been good this year as Canada’s Public Sector Pension Investment Board and Loral Space & Communications have agreed to acquire Telesat Canada for C3.42-billion. This is a significantly higher than the average analyst estimate of $2.5-billion. UBS analyst Jeff Fan, who was looking for a $2.1-billion price-tag, said he was surprised by the high valuation but “with little overlap between Telesat and Loral, significant synergies are likely expected”. In terms of how the deal will go down, PSP will own 64% 36% while Lorel will own a 36% 64% stake. (To comply with Canadian foreign ownership rules, Loral’s voting equity will be 33.3%). It should be noted BCE was exploring the idea of IPO-ing Telesat.
With the sale of Telesat, Sabia has completed the overhaul of BCE that he initiated shortly after taking over as CEO from Jean Monty in early-2002. As Sabia had mentioned many times, it has been a lot of “blocking and tackling” as he has tried to focus BCE on core operations while slashing operating expenses to compete with traditional rivals in the wireless, enterprise, high speed and TV markets, as well as emerging competition from online players. The major challenge now is finding ways to jump-start revenue at a time when the pricing environment is volatile. This is the job of COO George Cope, who bullishness told investors last week the company is looking for 3% to 5% revenue growth in 2007. Cope is known as an executive who is disciplined about prices (a.k.a. he’s loathe to reduce prices to compete) but BCE has no choice but to be more creative than raising prices if it wants to see BCE increase revenue, which has been flat in recent years.
For more, check out Bloomberg News and Reuters.

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