BCE well prepared for SBC cashout (gam)
Fabrice Taylor
BCE made it clear yesterday that there's a very good chance SBC Communications will exercise its put option on its stake in Bell Canada this year.
"We will be prepared," freshly minted chief executive officer Michael Sabia stressed repeatedly to investors and analysts.
BCE says it has no clue whether its partner will exercise its right to sell its 20-per-cent stake in Bell, but BCE's actions speak loudly.
Besides walking away from Teleglobe, BCE took various other steps to bolster its balance sheet, including the expected securitization of its directories business.
That's comforting, because some analysts also think SBC will exercise, and this year rather than later. The reasoning is hard to resist: SBC's finances are reasonably healthy, but its fortunes are slowly declining (wireline revenue fell 3 per cent in the first quarter) and its growth options seem limited to acquisitions. The $7-billion or so it can cash out of BCE would come in handy. SBC is also parting ways with BCE on some technologies.
That leaves the unfinished business at Teleglobe all the more intriguing.
BCE says the unit is not "financially viable" and plans to take it off the books.
Officially, Teleglobe is for sale (or available to a deep-pocketed partner), but even BCE points out that the unit's rivals are bound to emerge from restructuring with leaner business models.
Teleglobe, in its current form, is a hopeless case in other words. Yet BCE is going to throw another $150-million to $200-million at it, a token amount given the $9-billion already invested, but a little peculiar under the circumstances.
Why throw money at a dog? Presumably because it makes dealing with the creditors a little easier. Teleglobe's lenders are not a happy bunch. They have no recourse to BCE, but their recriminations are at a high pitch; as they see it, they were misled by BCE's guidance. After fielding some aggressive questions from a bondholder yesterday, Mr. Sabia mumbled something about "a harbinger of things to come."
What's to come depends on whom one asks.
BCE could compensate creditors wholly, or more likely, partly. Or it can just walk and hire lawyers for the inevitable lawsuits (which doesn't imply that it did anything wrong).
Bondholders or bankers will tell you BCE can't afford to leave creditors twisting in the wind. The company, they'll argue, needs financial flexibility in the event that SBC exercises. Burning lenders, the argument goes, would deprive them of that. Bankers and capital markets have long memories.
That's probably true, and credibility in the market is obviously important. But business is business. It's hard to imagine that lenders would turn their backs on an investment-grade borrower, especially when they lost money because they bet wrong. They didn't get it in writing so they took their chances.
More importantly, BCE doesn't need bankers or the bond market to finance the Bell repurchase in the near term.
It can do the deal with a two-year promissory note from the seller.
Even if SBC decides to exercise on July 1 (the soonest it can), the deal probably wouldn't be ironed out until September, meaning BCE would have until September, 2004, to find the funds.
That's plenty of time to heal wounds or find new bankers.
vox@globeandmail.ca |
