MONTREAL - BCE Inc. is expected to lay the groundwork this summer for a radical retooling, now that a $52-billion takeover of the telecom company appears headed for completion by the end of the year and a new top executive is takes over this week.
Joseph MacKay of Desjardins Securities said the changes at BCE's business will begin to take shape once George Cope becomes chief executive officer on Friday.
Cope had been identified months ago as the successor to Michael Sabia but Sabia had been expected to remain as CEO until the deal closed and a consortium led by the Ontario Teachers Pension Plan took over the company.
However, Teachers and BCE announced last week that Cope would become CEO on July 11 even though the deal won't formally close for another five months. Cope's ascension is expected to clarify who's leading BCE's senior managers.
"BCE has a number of key decisions it needs to make, including a decision on wireless technology, the build of IPTV (Internet television), the loss of a material number of residential wireline customers to cable, and potential asset sales," MacKay wrote in a report.
The parent company of Bell Canada cleared a significant hurdle last week when the banks financing the largest corporate takeover in Canadian history committed to provide billions in financing to complete the deal. Including assumed debt of about $17 billion, the transaction is worth $52 billion, making it the largest leveraged buyout ever.
The acquisition price remains at $42.75 per share, but the company won't pay any further quarterly dividends to common shareholders before the transaction closes by Dec. 11.
The dividend suspension will save BCE up to $900 million to help pay off debt or put towards working capital, and the delay in closing the transaction will give the banks more time to market and syndicate out part of their loans.
"The banks just bought themselves some time to try to market the debt in a more favourable environment," said Elliott Soifer, vice-president of Desjardins Securities International.
The only remaining concern rests on a further deterioration of credit markets that prompts the banks to unexpectedly walk away from the deal.
Although BCE shares rose strongly on Friday after the deal was announced, they lost a little ground Monday, falling 25 cents to $39.39 - a relatively small drop considering that the overall market was down nearly 300 points on Monday.
With the distraction of the privatization all but ended, Bell can fight to recapture market share by turning its focus back to operations, said Soifer.
"I think they will take the time to assess what needs to be done to begin with. I don't think they will make any drastic moves before the actual deal is inked."
Troy Crandall of MacDougall, MacDougall & MacTier brokerage also suspects options will be reviewed and preliminary decisions made, but final spending approvals that are included in its 100-day plan will await the deal's closing.
"By December, I don't think you'll see any major structural changes. It will be almost all internal such as changes in management, changes in personnel, maybe some reshuffling of departments," he said, adding there could be some cost cutting, more outsourcing agreements and new labour negotiations.
"I can't imagine that they intend to completely restructure the entire company in the 100 days."
Among the possible asset disposals are its 50 per cent ownership in Virgin Mobile, 43 per cent ownership in Bell Aliant and satellite TV operation Bell ExpressVu.
Bell Aliant could be sold if the new owners aren't interested in rural wireline service, or they might purchase the stake it doesn't already own.
Crandall doubts Bell will sell ExpressVu until it is able to establish IPTV for use primarily by urban customers.
Offering this service will require heavy capital expenditure, partially for extending Internet fibre network.
Naming Cope as chief executive signalled the new owners' desire to focus on improving Bell's strategic and competitive position in wireless.
Its strategy appears to be focused on offering more attractive pricing packages.
In a bid to take on the Apple iPhone that's going to be offered by rival Rogers Telecommunications, which currently operates only on GSM networks, Bell is introducing the Samsung Instinct Aug. 8 with a $10 unlimited data package.
"I think they are maybe already starting to be competitive and offer more appealing packages," Crandall said.
Bell has yet to tip its hand on whether it would partner with Telus to provide GSM capability on their networks, which currently use the CDMA standard.
The move could cost $500 million but risks being obsolete in a few years when newer technology comes along.
The big question for Bell and Telus is whether they are willing to take the risk of being uncompetitive, Crandall said.
