BCE talks: eliminating the middle man
The Ontario Teachers' Pension Plan is exploring a possible $45 billion buyout of Bell Canada parent BCE. The talks, first reported by The New York Times, could lead to the largest buyout in history, a record that doesn't stand for very long these days. The talks are interesting in several ways. But Ontario is almost alone among pension plans because it makes its own private equity investments. Most pension plans prefer to be limited partners, investing in deals led by other investors. "We've been leaders in private equity since we entered the field 10 years ago. We're there for the return," Jim Leach, who runs the $6 billion private-equity fund at the pension plan, told me last year in an interview. (link: http://www.businessweek.com/investor/content/nov2006/pi20061107_031256.htm?chan=search ) The fund, which has owned businesses such as Samsonsite luggage and the Toronto Maple Leafs, has returned an average of 26% a year.
But the highly competitive, capital intensive and still-regulated telecom business is a tough one LBOs, despite its heavy cash flow. It will be interesting to see whether a pension fund, of all things, can cut costs at such a labor-intensive business with a legacy as a national franchise. If they can make this work, it wouldn't be surprising to see other large telecom companies that lack the scale of Verizon or AT&T become LBO targets.
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