OTTAWA – The CRTC has given its approval, subject to certain conditions, to the purchase of BCE Inc.’s broadcasting assets by the group headed by the Ontario Teachers’ Pension Plan and three U.S. private equity firms.
“The application proposed to privatize the country’s largest communications company and included significant foreign interest,” wrote CRTC Chair Konrad von Finckenstein in the decision. “Consistent with previous decisions, we have imposed conditions to address our concerns relating to corporate governance. These conditions will ensure that control of BCE remains in Canadian hands once the transaction is completed.”
The CRTC set out six major conditions:
• the number of directors on the Board must be fixed at 13;
• Canadian investors must at all times nominate six directors on the Board, one more than non-Canadian investors, who may designate five;
• The Board Chairman must be Canadian and cannot be the Chief Executive Officer or a director nominated by a non-Canadian investor;
• A second teachers’ representative must sit on the Board’s Executive Committee;
• The Independent Programming Committee must consist of Canadians who are not affiliated with non-Canadian investors; and
• The threshold for veto rights must be raised to $110 million, approximately 5 per cent of the value of the broadcasting assets.
As well, the Commission said that for the purposes of determining effective control, it will only consider directors to be Canadian if they are “Canadian by citizenship or residency and who are designated by Canadian shareholders”.
During hearings in February and March, in response to the CRTC’s dissatisfaction with the proposal on the table, Teachers’ President and CEO Jim Leech offered to make adjustments to “enhance the Canadian-ness of the Board”.
In addition to the five Teachers’ Board appointees, he said, one of two independent directors would be approved by Teachers and that this person would be Canadian. As well, he said, the Chairman would be someone appointed by a Canadian shareholder.
Another of the CRTC’s concerns was the proposed arrangement between Teachers’ and one of its former executives, P. Morgan McCague. Under the proposal, McCague would hold 66.7 per cent of the class A voting shares and exercise his voting privileges according to Teachers’ directions, thus giving Teachers control over the majority of shares.
The CRTC has accepted this arrangement, on the basis of a letter from the Financial Services Commission of Ontario, saying the arrangement does not contravene provincial law.
The CRTC was examining the purchase because of provisions in the Broadcasting Act that do not allow foreign interests to control more than 46.7 per cent of a broadcaster or telecom company. The broadcasting assets involved are Bell ExpressVu, cable assets in Quebec, and a minority stake in CTVglobemedia.
Under the $51.7 billion takeover proposal, Teachers would own a bare majority (51.6%) of the equity share of BCE. Its partners are Providence Equity Partners, Madison Dearborn Capital Partners, and Merrill Lynch Global Partners.
Despite the CRTC’s conditional approval, there remains one more regulatory hurdle – getting the approval of Industry Canada. The takeover already has the green light from BCE shareholders and the federal Competition Bureau.
As well, holders of Bell Canada debentures have appealed the Quebec Superior Court ruling earlier this month which dismissed their claims that the takeover treats them unfairly.
Then there are global financial issues. Since the deal was negotiated a year ago, investment banks have become skittish about getting involved in mega-transactions.
Tangible benefits
Another CRTC concern was the proposed tangible benefits package. Under the proposal, Teachers allocated $109.6 million for the purpose of calculating the tangible benefits.
However in its decision, the CRTC revised that figure to $219.1 million, noting that the applicant had excluded the value of Internet Protocol Television (IPTV).
This increases the tangible benefits package to $21.9 million. The CRTC further directed that $10.5 million be placed in a fund whose annual revenues will support new media initiatives.
As well, the CRTC requires, as a further condition of approval, that the applicant file within 30 days an amended By-law establishing the Independent Programming Committee that provides that no member of the committee will be a director, officer, or employee of any non-Canadian shareholder.
