It's time to hand Telus CEO the sack
By FABRICE TAYLOR
Tuesday, June 18, 2002 - Print Edition, Page B12
Darren Entwistle, on being named chief executive officer of Telus two years ago: "This is an organization with a very bright future." The stock rises 50 cents to close at $41.10.
Seventy-seven days later, the wunderkind pays $6.6-billion for wireless dealer and money-bleeder Clearnet, smothering the future with a pall. More dubious transactions follow.
Telus stock has since lost 67 per cent of its value. Question: When does the CEO fall on his handset? When Mr. Entwistle landed, at the tender age of 37, Telus was a concern of $6-billion in annual revenue with a balance sheet of rare beauty: Assets of $8-billion, long-term debt of $1.5-billion and shareholders' equity of $4.3-billion. The business returned 15 per cent on equity and the bonds were high investment grade.
Today, Telus achieves revenue of about $7-billion on assets of $18-billion and debt of $9-billion. The return on equity is pathetically negligible, even if you strip out the mountain of doubtful goodwill. The debt dangles above the credit junk yard by a strand.
Jean Monty, late visionary of BCE, got it wrong and paid for it. Other sowers of telecom disaster have taken their golden leaves. But not our Darren, who's still gainfully employed at $1.3-million per annum plus perks. His defenders will say he's no Jean Monty. True, his vision didn't involve vertically integrating every step of the telecom stairway, from last mile to long distance to pizza delivery. In fact, Mr. Entwistle made a point of sharing his disdain for convergence, insisting that under his stewardship, Telus would stick to its knitting: telecommunications. It sounded good, and probably increased the flow of funds from BCE to Telus stock. But in the end, he set new standards in value destruction. Other boosters will point out that it's not just Telus that's suffering, it's the global industry. That's a time-honoured defence, but it's a crock. First of all, it implies that management talent in any industry is clustered tightly about the mean and that shareholders should be content with the average (despite what it costs them). But good management is precisely how real value is added. Besides, the damage may be industry-wide, but it is not evenly distributed. The Swiss telecom incumbent, Swisscom, refrained from the lemming behaviour of its peers and came out of it free-cash-flow positive. Swisscom's American depositary receipts have returned a compound annual loss of 7 per cent since Mr. Entwistle's advent, a striking achievement compared with the 42-per-cent annual loss on Telus stock.
It's not like no one saw the cataclysm coming, either. Ross Healy, principal of Strategic Analysis, laid out his bearish scenario a long time ago. Even diplomatic brokerage analysts have had trouble muffling their gasps at Telus's missteps, from Clearnet to the eastern competitive local exchange carrier expansion to the high-speed Internet battles lost to Shaw. It's abundantly clear that the future of communications has not unfolded as richly as Mr. Entwistle anticipated, nor will it. Someone has to pay the
toll, and we know who that is. Mr. Healy figures Telus stock would benefit if the company disgorged Clearnet and replaced its CEO.
Others may not agree on the former, but as to the latter, it's high time for the board to swing the axe.
Telus, then and now
....................Then......Now
($billion)
Assets
(less goodwill) $7.8 $15.3
Long-term debt $1.5 $8.8
Interest coverage
(times) 13.0 3.5
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