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Wednesday, August 30, 2006

A Backdoor Play For Telesat Canada IPO?

BCE Inc. (BCE) is going to pursue a $1 billion IPO for its Telesat Canada commercial satellite unit, according to an article in Canada's The Globe & Mail. BCE had been in discussions to sell its Telesat unit to a private equity group in a "club deal" that included Ontario Teachers’ Pension Plan and one that previously included SES Global SA and Eutelsat SA. Buyout talks had reportedly been called off but it wasn't just on price. There were some issues over who would run this, but one major hurdle was the foreign ownership and management limitations that keep infrastructure domestic.

Telesat owns five satellites and has a growth story (according to the article) that would support an IPO. Last year, revenue rose 31 per cent to $478-million, with the company generating $203-million in cash from carrying North and South American television and telephone traffic.

This IPO filing does not prohibit BCE from going back to the table for discussions, but even though a federal review panel recommended easing foreign ownership and investment rules Ottowa has been holding firm because of "fears of job losses and national security."

We'll have to see what the real terms end up looking like before making a firm pat judgement this far out. Usually deals that cannot go private and ending up having to become a quasi-IPO means that the overall valuation isn't there as a private company and the company needs the public investor premium. So while this is in the beginnings of a bad formula, we will give it the benefit of the doubt for now by at least remaining neutral for the time being.

While we would normally call BCE a backdoor play, that usual tie is not really true here. That is why we left a Question Mark in the Title of this article. BCE in the US equivalent has a $20 Billion market cap, so a 20:1 ratio is probably not worth the homework. If we uncover anything broader we will re-address this situation.

Jon C. Ogg
August 30, 2006
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