Darren Entwistle as Telus CEO is ‘less complicated’: analyst

After a little more than one year on the job, Telus Corp. announced Monday that Joe Natale has stepped down as president and CEO, and has been replaced by Darren Entwistle, who was Natale's predecessor in this job and has been the company's executive chairman ever since the previous changeover. In a press release, Telus listed Natale's reluctance to move to Western Canada for family reasons as a reason for the change, and said the decision was made following an "extensive review" by Telus' board of directors that concluded late Friday. Telus said that "the board determined that the company would be best served by having its chief executive officer reside in the West." Telus is based in Vancouver and is the incumbent telephone company in British Columbia and Alberta. No mention of this executive changeover was made Friday as Telus released its second-quarter financial results and held a conference call with Entwistle and Natale. Natale was announced as the company's next CEO in March 2014 and started the job that May. Entwistle became executive chairman at this time. The press release announcing this executive shakeup said Natale would be based in Toronto and made no mention of future expectations for him to move west. Natale was promoted from the position chief commercial officer and had been with Telus since 2003. Telus spokesman Shane Dolgin said in an email Monday that it was anticipated Natale would move to Western Canada by the time Entwistle's current contract expired in 2017, at which time he was to become a non-executive chairman. Dolgin said Natale's role as CEO was never meant to be interim, adding that his departure is not related to performance or a conflict with other members of the leadership team. Entwistle has continued to be a prominent member of Telus' leadership since initially stepping down as CEO, always being the first executive to talk during quarterly conference calls and regularly being the main official quoted in Telus press releases. Scotia Capital analyst Jeff Fan said in a research note Monday that Telus' return to a "one-leader" model is a positive development. "The less complicated leadership structure should provide enhanced clarity," he said. Telus said Natale would stay on in an executive, non-board role until the end of the year to help with the transition. It added that Dick Auchinleck would become the board's "independent" chairman. Fan said this appointment "improves the company's governance model and supports strong, independent board leadership and functioning, in our view." At the time of last year's leadership switch, Canaccord Genuity analyst Dvai Ghose credited Entwistle with helping to turn Telus into “arguably the most successful wireless carrier in North America, including record low churn that reflects customer friendly policies.” Telus has a continued record of success under Natale's leadership. In its recent second-quarter earnings report, it touted its North American-leading churn rate among postpaid wireless customers of 0.86 per cent. It reported a net increase of 63,000 wireless customers during the second quarter, the time for which all grandfathered enforcement of contracts more than two years old ended under provisions of the wireless code. By comparison, Rogers Communication Inc. reported gaining 32,000 wireless customers in the last quarter while BCE Inc. said it had a net addition of 22,110. Yet, there have been setbacks for Telus in recent months, such as losing out to Rogers in an attempt to acquire Mobilicity in a deal that was approved by the federal government and ended a period of nearly two years of bankruptcy protection for the smaller carrier. Telus had been prevented by the government from buying Mobilicity on three previous occasions. As well, Telus recently shut down its Blacks retail chain, which contributed to a year-to-year decline in net income in the most recently reported period. Aravinda Galappatthige, an analyst with Canaccord Genuity, warned investors in a research note Monday that the leadership change announced Monday could lead to volatility in Telus' stock price in the short term "especially considering the fact that the transition to Natale occurred quite recently. We suspect the market would, at least at the outset, worry about continuity of leadership and management succession." He noted, however, that Telus indicated that Entwistle's newest term as CEO would be on a "long-term basis." He encouraged investors to "take advantage of any volatility to find a more attractive entry point to the stock." On Monday, before Telus announced Natale was stepping down, Galappatthige issued a research note saying he was downgrading the company's stock to a "hold" from a "buy." He explained the company's forecast that capital spending would increase to $2.5 billion this year from $2.36 billion last year cast doubt it could continue increasing dividend payments by 10 per cent a year. In response to news about Natale stepping down, RBC Dominion Securities analyst Drew McReynolds said in a research note: "While the news is a surprise, we do not see any change to the strategic direction or financial priorities of the company." Barclays Capital analyst Phillip Huang said in a research note that the change was unlikely the result of "internal disagreement" at Telus, and he does not anticipate "follow-on changes to the management team." Given that Entwistle "remained very active in the company's operations" while Natale was CEO, "we believe it will be a smooth transition," Huang said. — With reporting by Derek Abma at dabma@thewirereport.ca and editing by Shruti Shekar at sshekar@thewirereport.ca

Darren Entwistle as Telus CEO is ‘less complicated’: analyst

News | August 10, 2015

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