It's a phone company, not a national icon
To be fair, there is a division of opinion on this: some think Rogers is even worse than Sympatico. But the point is: it’s the phone (or the cable) company. They may be offering some new services, they may be engaged in a gentlemanly simulacrum of competition, but underneath they’re still the same old fat, incompetent monopolies they always were.
Yet let a telco, or any company in the fast-mutating telecom sector, come under “threat” of a takeover from abroad, and suddenly they become precious national assets, pieces of our very soul. Thursday’s story in the Globe and Mail reporting that BCE Inc. was in talks with an American private equity fund, Kohlberg Kravis Roberts, about a leveraged buyout carried the headline “US equity firm stalks BCE, plots takeover.” You’d never know that what was being discussed was a friendly takeover.
But God forbid that even friendly takeovers should be allowed: not when it comes to foreigners, and not when it comes to telecoms. Indeed, the law forbids it, limiting foreign ownership to 46% -- a ratio discovered by the Greeks, and inscribed in their most sacred temples -- though strangely no one thinks this poses much of an obstacle: a simple matter of lining up the appropriate Canadian investors, like the Ontario Teachers Pension Plan, to front the deal.
But then, the law is one thing, politics is another, and so no one expects any deal to go through until after the election -- if then. Already the keening has resumed over the “hollowing out” of corporate Canada, the haemorrhaging of head office jobs, selling our birthright for a mess of pottage, etc. -- the same dirge that attends any and all foreign takeovers of any size. And as usual, the loudest wailing is coming from, of all places, Bay Street.
The Financial Post editorial page ran a piece yesterday by an apparently inconsolable management consultant (headline: “Hollowing out Canada”), bemoaning a trend that “could turn Canada into a branch-plant economy within a decade,” and laying most of the blame on the fact that, under Canadian law, BCE’s board is required to get the best deal for its shareholders.
“It is not a level playing field,” he complains, “when our securities law will force shareholder review of any good offer, when in neighbouring jurisdictions corporate boards have the authority to just say ‘no’.” Usually, when boards fail to get the best deal for shareholders, it’s considered a dereliction of duty. Now we are told it should be national policy.
What would “just saying no” mean in the case of BCE? Before news of KKR’s interest broke, the company’s shares were trading at roughly $30 a share, or a total market value of about $24-billion. It’s expected that any takeover offer would carry a premium of 15 to 20%, even without a bidding war. So we’re talking about possibly $5-billion or more that would be denied to the shareholders of BCE, including thousands of teachers and other small investors who participate through their pension funds.
Leave aside, for now, the theoretical arguments: that the $5-billion shareholder premium would not go into a mattress, but would be reinvested elsewhere in the economy; that BCE shareholders would only tender their shares if the value of bid exceeded the discounted stream of BCE’s future profits, or in other words if they could put their money to better use elsewhere; that the Canadian ownership our nationalists are so concerned to protect means also the right of Canadians to sell.
No, to rebut the “hollowing out” argument it is sufficient to point out that it is not, in fact, happening. Since 1999, the year the current wave of hysteria began (“Canadian icons are falling like tenpins,” the then chairman of the Business Council on National Issues warned. “The great Canadian fire sale is under way.”), the proportion of Canadian corporate assets in foreign hands soared from 21.7% to ... 21.9%.
Those precious head office jobs, all those lawyers and accountants and, um, management consultants? Statistics Canada figures show that, between 1999 and 2005, the number of head offices in Canada grew by 4.2 per cent; the number of head office jobs climbed by 10.7 per cent, to nearly 175,000. And where did most of that growth come from? You guessed it: from foreign-owned firms. “Much of the dynamism in Canada's head office sector actually comes from foreign-controlled firms,” the agency reports. In fact, the study’s co-author told the Toronto Star, “what we're finding is that many foreign firms add staff because they do as much, if not more, research and development than domestic firms.”
Another StatsCan study cites a large body of research confirming that “foreign owned plants operating in Canada exhibited higher labour productivity, and tended to adopt new advanced technologies, earlier and faster than their domestically owned counterparts.” And so on.
This is a bogus, bogus issue that should have died long ago. I grieve for the loss of Bell as a national icon, I really do. But then I remember my phone bill.
3/31/2007
