Teleglobe being shopped around as parent BCE halts future funding

Management and investors in Teleglobe Inc. are rushing to keep the company afloat following the decision by BCE Inc. to cut its ties to the troubled company. Reports indicate there is some interest in the carrier, but how strong that interest is, and whether it is for the entire operation or only selected parts, is unclear. Following the release of its first-quarter results on April 24, BCE announced it was halting its long-term funding to Teleglobe. "BCE will provide only short-term periodic funding to Teleglobe, on terms and conditions satisfactory to BCE, up to a maximum aggregate amount of between US$100 million and US$125 million so that Teleglobe can provide continuing customer service and fund other operations-related needs while it reviews its options for the future, including possible business combinations and restructuring," the parent company said in a news release. At the same time, officials in the Reston VA-based subsidiary issued their own statement saying they were "pursuing a range of financial restructuring alternatives, potential partnerships and business combinations." Teleglobe has hired consulting firm Crossroads LLC to advise it on restructuring. Jack McGregor, Crossroads’ principal in the turnaround practice, is the lead consultant on the venture. Shortly before the BCE announcement, a group of noteholders formed an ad hoc committee to monitor the situation (NL, Apr. 23/02). Evan Flaschen, lead attorney for the committee, tells Network Letter the group’s representatives met with Teleglobe’s lawyers and financial advisors on April 25. The meeting lasted for several hours and was "cordial and cooperative and constructive", he reports. The committee was upset when BCE first said it did not wish to continue funding. "We are not happy campers," the attorney notes wryly. One financial analyst, who didn’t wish to be named, thinks BCE made the right move in stopping the funding. The decision to take over Teleglobe in February 2000 was a brutal investment (NL, Mar. 8/00), the analyst believes. Some industry observers have said that former BCE chair/CEO Jean Monty, who resigned from the company immediately following the release of Q1 results, paid too much for the carrier. "If they had spent one billion dollars instead of $7 billion, it still would have been a bad deal," the analyst claims. McGregor told the Montreal Gazette that three parties are interested in buying Teleglobe "in whole or in various parts." An earlier list, compiled by Lazard LLC investment house, had found more than 30 prospective buyers. He believes some of the assets have great appeal to investors, although he concedes getting rid of the firm’s fibre network could be more problematic. "I wouldn’t put too much optimism in the fact that we’re talking seriously with the three until we see their offers," he told the Gazette. "We never know how good they’re going to be." As troublesome as Teleglobe has been to BCE’s bottom line, it still provided close to a tenth of the communications conglomerate’s revenues in Q1. The decision to dump the carrier has telecom observers wondering how new CEO Michael Sabia will change BCE. The bureaucrat-turned-businessman has a reputation for plowing ahead boldly. While working for the federal department of finance, he spearheaded the adoption of the Goods and Services Tax. In 1993, Sabia shifted to Canadian National Railway Co. where he and his mentor Paul Tellier slashed 18,000 jobs over the course of five years. By 1999, Sabia had been drafted to work at BCE subsidiary Bell Canada International as vice chair/CEO. The company began refocusing its efforts, dumping holdings in Asian telecoms while concentrating on its South American operations (NL, July 31/00). But by late last year, even the Latin American holdings were becoming contentious (NL Update, Nov. 26/01). Sabia oversaw the reorganization of BCI’s investment in Telecom Americas Ltd. By the end of last year, BCE was ready to unload the international division (NL, Dec. 18/01). The telecom analyst praises the last move, terming it "well thought out" and expects it could set the pattern for future plans. The analyst cautions, however, against speculating about widespread dumping of assets. "Sabia will take a tougher look , but don’t expect a fire sale," the analyst asserts. Some predict that Bell Globemedia is a prime candidate for divestiture. The theory holds that The Globe and Mail would be re-acquired by the Thomson family or snapped up by media baron Conrad Black, currently without newspaper properties in this country. CTV and its array of specialty channels could be attractive to Corus Entertainment Inc., the broadcasting company controlled by the Shaw family of Calgary. (That last move would be a return of sorts for Corus president/CEO John Cassaday. He was president of CTV until 1997.) But any action on the Globemedia front would be months away, if at all. The soft advertising market makes any sort of sale unproductive for an owner. In addition, Globemedia has not been a drain on the parent company the way other divisions have been.

Teleglobe being shopped around as parent BCE halts future funding

News | May 7, 2002

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