The Bell Tolls for BCE

Ever since the $52-billion leveraged buy-out of BCE emerged, I’ve contended that it was a move that would cripple the company with enormous amounts of debt at a time when it is facing fierce competition from cablecos such as Rogers.

This thesis didn’t get much attention given everyone – media, analysts, investors – was far more enamored with the idea of a multi-billion dollar LBO than the competitive landscape. Even before the deal came to light, Bell was already losing huge chunks of its lucrative home telephone business to the cablecos, while getting pummeled by Rogers and Telus in the wireless market.

Meanwhile, the cablecos were thriving by offering a bundle that included home phone, high-speed Internet, television and wireless service – something Bell still can’t offer.

So, it’s interesting to see a story in the New York Times today looking at the “seemingly relentless decline” in Bell’s business. It quotes analysts saying the deal’s demise is a good thing for Bell, including this one:

“This announcement today is probably the best news Bell can hear,” said Brahm Eiley, a principal at the Convergence Consulting Group, a telecommunications analysis firm based in Toronto. “They were going to be saddled with a debt which would have meant that they could not have done anything.”

What I want to know is where were these kind of stories and quotes while the LBO was in the midst of happening? Was everyone just so taken with the magnitude of the deal, and the fact it was going to revive Bell’s lackluster stock? Or was it the fact that the deal put Canada on the LBO map?

In many respects, it strikes me that Bell’s LBO was akin to Hans Christian Andersen’s story, The Emperor’s New Clothes.

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