Wow!
In one fell swoop, the federal government has abruptly derailed plans by Telus Corp. and BCE Inc. to convert themselves into income trusts. "BCE and Telus will not be able to become income trusts and have the tax benefits that are currently available," Federal Finance Minister Jim Flaherty said after unveiling new rules aimed at puncturing the income trust phenomena. Obviously, the federal government finally got spooked by the growing number of companies looking to avoid paying income tax by converting themselves into income trusts but you've got to believe Telus CEO Darren Entwistle and BCE CEO Michael Sabia must feel betrayed because they were acting by the existing rules. The key question is whether the move is political or grounded in economic reality. Are the federal PCs worried more about winning the next election or are they truly concerned federal coffers are being depleted by the income trust scourge. Mark Goldberg has some thoughts about Flaherty's move, while highlighting that Rogers has seen its stock climb through the creation of higher shareholder value. Anyone want to bet how much Telus and BCE shares will plummet on Wednesday? If you thought Entwistle was unhappy before (according to the recent Report on Business magazine profile on him), you ain't seen nothing yet if Telus shares drop 10% to 20%.
One more key thought: Do you think Sabia killed (or to be even more blunt...f**ked) Entwistle's income trust party by unveiling his own income trust plans so soon after Telus did? If BCE hadn't finally jumped on the income trust bandwagon, maybe Flaherty would not have have felt so much pressure to get involved. But with the country's largest ILECs trying to walk away from paying income tax, Flaherty may have felt enough was enough. Truth be told, BCE was probably the straw the broken the income trust's back. I mean when Canada's telephone company moves to avoid paying $800-million in income tax, it's likely not going to go over well in Ottawa.
Update: The Globe & Mail's Eric Reguly has an interesting column, suggesting Flaherty made a bold move but could have committed political suicide.
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Mark Evansthe blog - examines the world of telecom and technology from a distinctly Canadian perspective.the person - lives in Toronto, CA with his wife and three children, and works as director of community with PlanetEye Inc. 
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Telus, BCE Income Trusts Killed
Comments
Re: Telus, BCE Income Trusts Killed
by
MRM
on Tue 31 Oct 2006 10:43 PM EST | Permanent Link
You could well be right on the true motivation of the BCE income trust announcement. Mr. Sabia, after all, is a former Deputy Clerk of the PCO. No one outside of the government would have a better feel for where this road could go than he.
The original RBC+BMO merger might have gone through as well if it wasn't for the CIBC+TD announcement that followed in its wake. Strategy worked once before.... MRM Re: Telus, BCE Income Trusts Killed
by
Neal McIntyre
on Wed 01 Nov 2006 12:39 AM EST | Permanent Link
This is bad news for investors who won't have those guarenteed dividends anymore, but great news for everyone interested in the future development of the country's communications infrastructure.
The conversion of Bell and Telus into income trusts would have seriously limited their flexibilty, as almost all of their net income would have to be regularly given out to its shareholders, rather than be used for reinvestment. Now, telcos will have much more freedom to reinvest in infrastructure, which is in the long-term interests of the country and the networked economy. Re: Telus, BCE Income Trusts Killed
by
Anonymous
on Wed 01 Nov 2006 09:32 AM EST | Permanent Link
BCE was ready to go trust prior to the Liberal gaff last year. This has been in the works for a long time.
Re: Telus, BCE Income Trusts Killed
by
Anonymous
on Wed 01 Nov 2006 10:32 AM EST | Permanent Link
Dow Jones Newswires had an October 11, 2006 article (the Wall Street Journal carried) "BCE Eyes Trust Now To Create Parity With Telus >BCE" which suggested the move was a shrewd one by BCE to defend itself against Telus's growing share value (& possibility of a takeover by Telus), as well as forcing the government to accept or reject both conversions. So Sabia mayn't be the least bit upset. BCE wasn't poised to benefit as much as Telus given the higher proportion of wireless and growth Telus offered, so they've spoiled Telus's party.
The article included the following insights: "Scotia Capital analyst John Henderson suggested that Telus could use its higher-valued stock to acquire BCE, in a bid to take advantgage of the cost savings that could result by merging the two operations. By taking the trust route, BCE would be in a better position to either stave off a bid from Telus or try to turn the tables and acquire Telus. ... Some have suggested that BCE announced the trust plan now because it wanted the Canadian government to consider its proposal at the same time it looked at Telus, if the government is concerned about the loss of taxes resulting from the growing trend of big companies adopting the trust structure. This way, the government will have to either approve or reject both proposals. " Re: Re: Telus, BCE Income Trusts Killed
by
Anonymous
on Wed 01 Nov 2006 02:50 PM EST | Permanent Link
Competiton Bureau would never allow TELUS/BCE acquisition/merger to happen. Moot point.
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