CRTC boss skeptical over BSE takeover

CRTC boss skeptical about proposed
$52-billion BSE takeover

Sean Silcoff
Canwest News Service
Tuesday, February 26, 2008

GATINEAU, Que. - The proposed $52-billion takeover of BCE Inc. was met with skepticism from the chairman of the Canadian Radio-television and Telecommunications Commission over who exactly will own and control the parent of telecom giant Bell Canada.

In a hearing Monday, Konrad von Finckenstein, CRTC chairman, grilled the buyers about the structure of the deal and whether Canadians would control the board and executive committee in accordance with various federal laws.

The deal, as structured, "leads to paper compliance (to the law), but not necessarily to control-in-fact," he said. "I'm not convinced of that by the way you've constructed (the deal)."

CRTC approval is one of several milestones required for the deal to pass, as the regulator oversees Bell's satellite-TV operator, ExpressVu, and part-owned media firm CTVglobemedia.

Ontario Teachers Pension Plan is the lead investor, putting up 51 per cent of the equity for BCE, with most of the balance held by three U.S. private-equity firms, including Providence Equity Partners. Teachers plans to sell part of its stake to other Canadians once the deal closes.

Teachers chief executive Jim Leech said :"The bottom line is that a clear majority of the equity (in BCE) will be held by Canadians, with day-to-day management and operation residing with management of the various companies all under the supervision of a board of directors with Canadians in control."

ExpressVu president Gary Smith also promised a seven-year, $11-million slush fund to spend on Canadian broadcast initiatives, including a venture with the Stratford Festival, where Leech serves as director.

But von Finckenstein took issue with several points in the deal. Under Ontario pension law, Teachers cannot own more than 30 per cent of the voting shares of a company. So it has designated Morgan McCague, a retired Teachers senior vice-president, to own two-thirds of the voting shares. But he must vote according to Teachers' wishes, a routine move by the pension fund in buyouts.

"I'd like to understand this whole issue,"von Finckenstein said, adding that the structure confused him.

He asked to see documents about the relationship and a letter from Ontario pension authorities blessing the deal. The buyers are expected to address his questions today.

Von Finckenstein also asked why Teachers gets to designate just five of BCE's 13 directors. Five more will be named by the U.S. partners, and the CEO and two independents will round out the board.

"I don't understand why you have to share the nomination," the chairman said. "I don't see that you have control."

Leech said, "Our view is the majority of the board will be Canadian," adding Teachers would also have a say in naming the independents.

The commissioner also questioned the composition of the executive committee, a four person team where Teachers names the chairman, two U.S. private equity firms name a member each, and incoming CEO George Cope holds the fourth spot. Leech said three of the four would be Canadian and that the committee would have limited decision making powers, answering to the board.

But von Finckenstein suggested that even if the executives named by the U.S. interests were Canadian, their Canadian-ness would be impaired by the fact they answered to Americans.

"How can you say unequivocally you are in control here?" he asked. "At first blush it certainly doesn't seem that Teachers is running the executive committee."

Leech said: "It's not like non-Canadians can exert control over the organization through this committee, is our view, sir."

After the hearing, Leech told reporters: "We believe the construct (of the deal) does satisfy those issues. It may be a matter of explaining it in a different way, or making sure that CRTC understands exactly the rationale on the constructs. Alternatively, it may be we need to look at some where it's not as clear. We'll look at that."

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