TORONTO (03/03/2000) - BCE Inc. intends to distribute its approximate 37 percent interest in Nortel Networks to BCE's nearly 500,000 shareholders in what analysts are calling a windfall.
"The best news is for the people who happen to own BCE stock, because suddenly they're being handed a certain amount of stock for every share of BCE stock they have. It's like a windfall bonus," said Dan McLean, a senior analyst with IDC Canada Ltd. in Toronto.
Both McLean and fellow IDC Canada analyst Jordan Worth said the announcement would benefit all of the players involved. BCE is giving the stock away in an effort to improve its own market value, both analysts said.
"If you value Bell at something like $40 billion, something like $35 billion of that was Nortel, so Bell was only being valued on about $5 billion worth of assets," which is incorrect, said Worth. "BCE is what, $30 or $40 billion on its own. It was a question of perception."
"Bell, in order to free itself from the shackles of Nortel's value and create value on its own, gave away its share in Nortel to its stakeholders... It also enables them to have more control over their own stock and how they choose to use it when they go on the acquisition path. They can use Bell shares and not be concerned with the fate of Nortel lying in the balance," Worth said.
McLean said part of the perception problem with BCE stock is that BCE is involved in so many different parts of the communications business.
"One of the issues with Bell right now is it's a whole lot of different companies. It's Bell Mobility, it's Bell Nexxia, it's Bell Carrier Services.
One of the challenges for them will be to draw everything in closer to being one single entity. There's a certain amount of confusion about what Bell is and what it is they do. Everybody knows them as a telephone company, but they do so much more than that," McLean said.
McLean and Worth both pointed out that BCE allows its newer subsidiaries like Nexxia to remain at arm's-length separation to foster growth and serve as growth engines for the whole company.
"They grow the business by trying to be separate business units, but ultimately the plan is to try to draw things closer together when these things start to mature and become more stable," McLean said.
The analysts said it was better for BCE to give the stock away rather than trying to sell it for various reasons including heavy taxation and headaches of distribution within BCE.
"Frankly, it's cheaper for [BCE] to do it this way," McLean said. "It becomes more complicated to sell it off... there are issues around profits they'd make on the sale and how to divest that through the company, and it becomes a big, complicated sort of thing."
Nortel benefits from the plan as well, McLean said.
"It will probably help Nortel, because the fact that [Nortel] is so closely tied to one particular carrier may give the wrong impression to some prospective customers, especially if they're looking to do more business around the world," and being a global player has become essential in the telco market, McLean explained.