Stumble It!
The proposed $52-billion takeover of BCE Inc. (TSX:BCE) by a consortium led by the Ontario Teachers' Pension Plan is unlikely to be undermined by slightly weakened fourth-quarter operational results, an industry analyst said Wednesday.
"We believe the results show BCE has not materially deteriorated to the point where the private equity sponsors are likely to exit due to changes in the fundamentals," Jeffrey Fan of UBS wrote in a report after the telecom giant announced its fourth-quarter and 2007 annual results on Wednesday.
BCE's fourth-quarter revenue was $4.55 billion, little changed from a year earlier, as revenue growth at its main subsidiary Bell Canada and the Bell Aliant regional business was offset by lower revenue from Telesat, which was sold in October at a profit.
Quarterly operating income slipped to $727 million from $752 million.
In the broader picture, despite stock-market doubts that Teachers and its U.S. investment fund partners can raise the money for the takeover of Canada's largest telecom enterprise, BCE said again that it expects the transaction to close "in the first part of the second quarter."
The deal was originally expected to be closed in the first quarter but was pushed back by regulatory hearings scheduled for later this month. The deal is also dogged by uncertainty over the outcome of a law suit brought by some of BCE's bondholders.
On Oct. 31, BCE booked a $1.89-billion net gain as it completed the sale of the Telesat satellite communications division to the federal Public Sector Pension Investment Board and Loral Space and Communications Inc.
BCE's net earnings per share amounted to $2.93 in the fourth quarter, up from 84 cents a year ago, boosted by the Telesat sale. Excluding investment gains, restructuring costs and costs incurred to form Bell Aliant, EPS rose to 72 cents from 44 cents.
Bell Canada's operating revenue grew 1.7 per cent to $3.82 billion, "as revenue growth in wireless, video and data more than offset declines in local and access and long-distance service revenues."
"This was another quarter of real progress capping off a productive year," president and CEO Michael Sabia said in a news release.
"We had good earnings and free cash flow growth and ... we had our best improvement since 2004 in operating profitability in the quarter and for the year as a whole."
Sabia said the wireline segment showed significant improvement because of productivity gains and a change in its enterprise business, which is focused on large-scale customers. Its wireline erosion declined in the quarter. It lost 117,000 customers, compared to 149,000 a year earlier. The segment's operating revenues decreased 0.7 per cent to $2.7 billion as gains in video and data revenues were offset by decreases in local, long distance, equipment and other revenues.
Bell Canada's wireless business underperformed in the quarter. Gross activations grew 16.7 per cent to a record 510,000 in the quarter, helping it to gain back some market share. However, it did so primarily through lower-margin prepaid subscriptions. Net activations were 195,000, or eight per cent lower than last year.
Post-paid net additions were up 77,000. That compared to 183,000 by Rogers Communications (TSX:RCI), which has overtaken BCE as the country's largest cellphone company.
Bell's wireless revenues increased by 6.6 per cent but its EBITDA (earnings before interest, taxes, depreciation and amortization), which is seen as a measure of a company's profitability, increased by 5.4 per cent, compared to 17 per cent in the previous quarter.
On the Toronto Stock Exchange, BCE shares gained 95 cents or 2.75 per cent to $35.50 in trading midday Wednesday.
