Thursday, January 31, 2008

BCE's bidding process fails to even meet Teachers' own governance rules for like transactions


It would appear that the procedures followed in BCE’s sale to Teachers’ do not comply with Teachers’ own corporate guidelines under Section 3.2 "Going Private Transactions," "Leveraged Buyouts" And Other Purchase Transactions, available by clicking here.

And which states:

“In addition to such an economic analysis, we will review the process by which the proposal was received. In this regard, we will consider whether:

* Other potential bidders have had an opportunity to investigate the company and make competing bids”


And since it has been reported in MACLEANS magazine (Canadian Press) that:

“The directors of BCE Inc. were kept in the dark about offers for the telecom giant by managers and advisers who manipulated the bidding process to freeze out bondholders in the sale of the company, lawyers for the bondholders said Monday.

The court was reminded that three BCE directors - Tom O'Neill, Jim Pattison and Donna Kaufman, the head of the strategic oversight committee - testified they were unaware or couldn't remember seeing all the details of the bids or how they would affect all stakeholders.”


As well as the following suppressive action by BCE concerning a “competing bid”, which was never disclosed to shareholders or the reasons behind its non-adoption:

Catalyst's Bell bid silenced
Barry Critchley,
Financial Post
January 30, 2008

Surely these standards that Teachers' laid down for other issuers to adhere to in like circumstances in which Teachers is a passive shareholder, apply equally to situations like BCE where Teachers' is driving the bus, or will it be a case of the shoe is now on the other foot?

Today's situation and fact pattern will be a true test of whether Teachers' actually believes in good corporate governance for all, or simply as a point of leverage for Teachers' as a large shareholder seeking advantage over other smaller shareholders.

That's actually a very easy moral question to answer. Simply ask any of Teachers' 271,000 pension beneficiaries, and they will tell you that no one likes a schoolyard bully. That's as true for Canada's public capital markets as it is for the school yard jungle jim.

Harper Conservatives: Glossary of Terms


“The notion and the implication that somehow the government on this file is responding to initiatives that originated with corporations is not based on reality”: Self-exonerating closing statement at the Finance Committee Hearings on Income Trusts by Eddie Haskel, Chairman and CEO of Mea Culpa Financial whose motto is “our bottom line dictates your reality”

Eddie Haskell:
Shmarmy duplicitous friend of Beaver Cleaver on Leave it to Beaver

Community Outreach Program: Ethnic, religious and racial profiling of voters

I have a fiduciary obligations to Canadians that today's social programs not be funded with tomorrows tax dollars (from RRSPs): But that doesn't stop me from using those very same taxes from yesterday's RRSP contributions that are withdrawn today which provided over $8 billion of tax revenues for fiscal 2007.

Different types of business can’t be taxed differently: Exceptions being, REITs law firms, accounting firms, and any different kind of business that is taxed differently, provided it is owned by a government sponsored pension plan. E.g. Thunder Energy Trust by the Public Sector Pension plan, or Legacy Hotel Income Trust by Caisse de depot etc.

Capital Insertion Rules: Growth restrictions and a secondary measure to kill income trusts (not applicable however if trust in question is opportunistically acquired by foreigners or pension plans)

Leveling the playing field:
Taking the stronger team (income trusts) off the field to coddle the status quo and higher cost of capital corporations

Helping Corporations make choices: Taking choices away from investors

Independent Panel: People who are beholding to us, and whose purpose is to validate and promote our hidden agenda to absolve the government of liability and pacify others, all the while subverting the role of elected parliamentarians

Eminent Canadians: See independent panel above

Burka policy:
xenophobia induced social intolerance

Transparency: 18 pages of blacked out documents, temporarily made available under the Access to Information Act (overnight lending section)

Accountability: Recall by Finance Department of blacked out documents when it is realized that alleged tax leakage isn’t about the numbers, its about the methodology

Mark Carney: Goldman Sachs Private Client Division (see accountability and transparency above for direct examples of his handiwork)

John Manley:
Part time Liberal, full time/full fledged member of US Council on Foreign Relations

Council on Foreign Relations
: De facto US State Department/Defence Department/US Treasury Department


Panel on Hollowing Out:
Working on a comprehensive how to manual of how to hollow out Canada through additional government initiatives like the income trust tax, which amounts to tax subsidies to foreigners to acquire business undervalued by the government's tax measures.

Insurance Litigator: Ambulance chaser

After dropping out of first year undergraduate studies at U of T, Stephen Harper worked in the oil patch: Mail room clerk at Imperial Oil, (father’s employer)

Tax Fairness Plan: Scheme comprised of gross inequities based on fallacious concepts, also commonly referred to in the vernacular as the “Alms for Manulife Plan”

Stephane Dion is not a leader: Stephane Dion is not a liar

Fish or cut bait: I am presently up in the polls, but don't know how long I can maintain this charade of leadership and suppress my hidden agenda for, so I will act belligerantly in the belief it will help my cause.

CCCE: Corporate Canada's Controlling Elite

CARP: Canadian Advocacy for Rent and Profit. Used to great success by organizations like Manulife Financial and Power Corporations' Investment Planning Council and other seeking a portal

CRAP: Conservative Reform Alliance Party of Canada

Modesty: Narcissism in the form of Self-Portraitures plastered all over the PMO office (see garth.ca for details)

Canadian Must Trust: Duck and cover

If you are aware of any other misuses of the English language by the Harper Conservatives whose sole intent is to disguise the sole intent of their government, please forward your examples or post them below in the comments section.

I am hoping that we can at least have a government that is accountable to the proper use of the English language. Any hope that the Harper government would be accountable to Canadians was abandoned when the media abandoned the public in the media's ongoing biased coverage of the income trust scandal, commencing November 1, 2006, with this account by BNN:

The sky is falling, because chicken little says it is


Which was then followed up by BNN’s grossly distorted coverage and editorialized of the Public Hearings on Income Trusts by the Finance Committee. Why else do you think BNN has a broadcast license, if not to mislead and misrepresent the goings on in Parlaimentary Committees. Maybe Brian Mulroney can get CBC to cut back to the studio every time that an opposition member asks a question or Karl Heinz Schreiber tesitifies. Perhaps L. Ian MacDonald can provide color commentary on Mulroney ethics the way Amanda Lang is the great defender of her beloved Mark Carmey’s Tax Fairness Plan (see above for definition).

Masters of the Universe take note: Optimization involves maximizing return, while minimizing risk.


By: Brent Fullard, Catalyst Asset Management Inc.

Perhaps now that it’s January 30, 2008 and BCE’s stock is is trading $10.00 below Teachers’ notional bid price of $42.75, and with some pundits going so far as to say the Teachers’ deal has a zero chance of happening, it would be quite instructive and most worthwhile to go back and read the letter that was submitted to BCE’s Strategic Oversight Committee on June 25, 2007 by our firm, Catalyst Asset Management.

Recent testimony in the Quebec Superior Court casts doubt on how well the Board of BCE fulfilled its fiduciary duty to shareholders and other stakeholders of BCE, Canada’s most widely held public company, since it was reported by Canadian Press that:

“The directors of BCE Inc. were kept in the dark about offers for the telecom giant by managers and advisers who manipulated the bidding process to freeze out bondholders in the sale of the company, lawyers for the bondholders said Monday.

The court was reminded that three BCE directors - Tom O'Neill, Jim Pattison and Donna Kaufman, the head of the strategic oversight committee - testified they were unaware or couldn't remember seeing all the details of the bids or how they would affect all stakeholders.”


How does one reconcile that alleged conduct with the Ontario Teachers’ Pension Plan’s position on good corporate governance? The answer: you can’t.

Speaking of Tom O’Neill, Jim Pattison and Donna Kaufman, here were the benefits to BCE described in Catalysts’ June 25, 2007 letter addressed to them and discussed with them and their advisors, starting with how the Catalyst Proposal would have obviated the very risks that are now the source of the current deals’ possible demise, namely the bondholders' lawsuit, CRTC approval and financing uncertainty for the $20 odd billion that Teachers' & Co, don't have to complete this $34 billion acquisition:

· value maximization alternative for BCE common shareholders through use of Stapled Securities and the enhanced annual income of $2.55 per existing BCE common share, a 74% increase from BCE’s current annual dividend of $1.46
· zero transaction risk as transaction is fully self funding
· no regulatory or timing risk when compared with alternative private equity and merger alternatives that will involve extensive parliamentary, regulatory, CRTC and/or competition review with an uncertain outcome and uncertain timing
· preserves BCE’s investment grade credit rating and retains financial flexibility for Bell Canada to continue with significant capital reinvestment in its core businesses to remain a leading and growing competitor
· each Stapled Security will consist of one underlying common share that it is contemplated will pay an annual dividend of $1.46 and one underlying subordinated debt instrument that will pay annual interest of $1.09 for a total income of $2.55
· based on current market conditions and yield expectations in the marketplace for comparable instruments, we are of the opinion that the Stapled Securities will have a trading value in the market of between $42.50 to $52.00 and we are confident in the mid range value of $47.25 being attainable.
· each outstanding BCE share will be exchanged for one Stapled Security and therefore BCE shareholders will be entitled to a tax free rollover for approximately 60-70% of the consideration received. The balance will be treated as a dividend income and taxed at rates not dissimilar to capital gains rates of taxation
· the tax efficient nature of the transaction via a share exchange and the significant rollover of a BCE investor’s cost base, places retail investors on a more equal footing with large pension fund investors
· eliminates "reinvestment" risk for BCE common shareholders
· allows existing BCE common shareholders to participate in ongoing future growth of BCE
· no “frictional costs” or involuntary loss of a latent value to a third party, as full equity value of BCE is retained by existing shareholders
· preferred shareholders will be redeemed for cash, thereby addressing the concerns of these security holders who would otherwise rank junior to the new subordinated debt within the Stapled Security
· Stapled Securities are not affected by the rules governing the taxation of income trusts or the explicit policy intent of the governing legislation, which is to bring income trusts in line with the taxation of corporations. Stapled Securities are issuances of corporations and not tax flow through entities, which are the sole focus of the income trust tax legislation. Other outstanding Stapled Securities are explicitly unaffected by the new taxation on income trusts. There is no policy justification that can be credibly made to deny the tax deductibility of interest on the corporate debt component of a Stapled Security. Direct precedents already exist and have been explicitly unaffected by the income trust tax policy which has now been passed into law.
· maximizes tax collection to Ottawa from the earnings of Bell Canada by preserving the largest proportion of taxable Canadian investors
· preserves existing Canadian ownership and control of Bell Canada and
Head Office location in Montreal
· preserves existing competitive landscape in this key sector of the Canadian economy that touches all Canadians and businesses
· beneficial outcome to all stakeholder groups including customers, employees, union, management, debtholders and preferred shareholders
· most beneficial outcome to Canadians and the country

Jim Prentice: You look good on top of that high horse of yours, now investigate this:


By “this” I am referring to the charges contained in the full pages ads that CAITI recently ran in the Toronto Star and the Calgary Herald
that read: “To Finance Minister Jim Flaherty: YOUR TAX LEAKAGE ANALYSIS IS FRAUDULENT”

As a lawyer you should be familiar with the concept known as fraud, but just in case you aren’t, allow me to quote the Oxford Dictionary:

fraud –noun
1. deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage.
2. a particular instance of such deceit or trickery: mail fraud; election frauds.
3. any deception, trickery, or humbug: That diet book is a fraud and a waste of time.
4. a person who makes deceitful pretenses; sham; poseur.

By “high horse” I an referring to the lofty statements you made in yesterday’s papers where you claimed that: "The judge spoke of misleading and disingenuous conduct and I think that all Canadians believe that warrants a response"

This statement of yours concerns the matter of the takeover of Lakeport Brewing Income Fund by Belgian based Labatt Brewing, which is only one of over 40 income trust takeovers that have occurred since your governments’ ill fated decision to betray Canadian voters and seniors by taxing income trust and raiding seniors nest eggs after promising to never do so. The $65 billion in trust tax related takeovers will cost every Canadian, because of the $1.4 billion loss in annual taxes they result in.

Concerning Lakeport Income Fund, it seems you are siding with Labatt on this matter, as you must be eager to see Lakeport being sold to foreigners, and oblivious to the lessened competition it represents from the purchase of a price leader in the beer category by a multinational premium priced brewer. You made a similar pro “hollowing out” statement this past summer about the $5 billion takeover of another trust, Prime West Energy Trust by middle eastern oil giant, Abu Dhabi Energy, when you made a speech in Vancouver stating that the $5 billion Prime West takeover was something you were willing to turn a blind eye to based on the laissez-faire logic that “Changing the rules in the middle of the game is not how this country does business.”...

Well if that’s the case, you need to acquaint yourself with reality. No one was asking you to change the rules in the middle of the game. The fact that you had allowed Abu Dhabi Energy to acquire Northrock Energy for $2 billion in May of 2007 doesn't mean that you automatically rubber stamp the $5 billion acquisition of Prime West Energy four months later, and then send Abu Dhabi a letter encouraging them to do "more of the same."

And concerning your point about "not changing the rules in the middle of the game", how does such a logic allow you to introduce a 31.5% retroactive tax after promising that you would never do so and thereby causing the loss of $35 billion in Canadian’s hard earned life savings?

Please provide us with an answer. Failing which please ask Jim Flaherty to sue us for slander, since we repeat what appeared in the Toronto Star and Calgary Herald newspapers” Jim Flaherty: Your tax leakage analysis is fraudulent”

If we don’t hear back from either of you, we will conclude that you are not worthy of riding that high horse of yours and your lofty statements will be nothing more than horse manure, or as some people call it: Stephen Harper’s Income Trust tax.

Wednesday, January 30, 2008

Something's rotten in Denmark: Catalyst's Bell Bid Silenced


Excerpts from today’s Financial Post article entitled Catalyst's Bell bid silenced

These are testing times for Bell Canada Inc. investors as the country's largest takeover faces financial, regulatory and legal issues.
Yesterday was no exception: The stock traded down again, closing at $34.46 -- about $5 below the level of Jan. 1 -- as disaffected bondholders continued their claims in a Montreal courthouse, and as the market upped its risk estimate of the $50-billion-plus deal going through.

Through the drama, Brent Fullard, formerly with BMO Capital Markets, has reminded everyone of how Bell shareholders weren't told about a proposal his firm, Catalyst Asset Management, lobbed into Bell last summer. That proposal, involving a so-called stapled security, was sent to Donna Kaufman, one of the three members of BCE's special committee. A copy was also sent to Ed Waitzer, the Stikeman Elliott advisor to the Kaufman committee.

In Catalyst's e-mail, this was said: "Further to my conversation with Jim Pattison on Friday and Ed Waitzer on Saturday, please find attached a letter describing in greater detail our Stapled Security proposal including an overview of the benefits and an assessment of the relative risks. Our analysis holds that such a proposal, structured in the manner contemplated, would provide existing BCE shareholders with a tax-efficient surfacing of value of between $42.50 and $52, with a mid-point trading value of $47.25. In addition, this proposal would be a very good outcome for the company itself and all affected stakeholders, as fully described in
the attached letter.

In that proposal, bondholders would have all been taken care of -- unlike the proposal accepted by Bell”


Excerpts from Canadian Press article entitled “Bondholders say BCE finessed takeover deal to avoid bond redemption”

The directors of BCE Inc. were kept in the dark about offers for the telecom giant by managers and advisers who manipulated the bidding process to freeze out bondholders in the sale of the company, lawyers for the bondholders said Monday.

The court was reminded that three BCE directors - Tom O'Neill, Jim Pattison and Donna Kaufman, the head of the strategic oversight committee - testified they were unaware or couldn't remember seeing all the details of the bids or how they would affect all stakeholders.


Excerpts from Catalyst Letter of June 25, 2007 to BCE’s Strategic Oversight Committee:

"[The Catalyst Proposal] preserves BCE’s investment grade credit rating and retains financial flexibility for Bell Canada to continue with significant capital reinvestment in its core businesses to remain a leading and growing competitor.

In addition, since the debentures contained in the Stapled Securities are subordinated in all respects to the outstanding debt of BCE, it is anticipated that ratings of New BCE’s debt will be preserved at a strong investment grade, as they were under the contemplated income trust conversion, for which the ratings were to have been (at least):

Long term debt:

DBRS: A(low)
S&P: BBB+
Moody’s: Baa1

Short term debt:

DBRS: R-1 (low) with stable outlook (confirmed)

Excerpts from Moody’s Credit Alert of September 2007:

With book debt expected to increase by more than 300%, the company’s risk profile will be profoundly affected by the proposed transaction, and its rating could be adjusted by several notches. Per Moody’s event risk policy, until both a full fact set is available and there is certainty of an event occurring, a definitive ratings assessment cannot be concluded. Accordingly, Moody’s review is ongoing and will be completed in due course.

In the interim, the available information does facilitate a preliminary and highly conditional assessment that can be used to illustrate key issues that will be considered. Given disclosure to date, and assuming there are no dramatic changes to the company’s business and asset portfolio, it appears that potential outcomes for BCE’s successor company’s (BCE Amalco) corporate family rating (CFR) range from B2to Ba3. It also appears that legal entity and debt structure considerations could cause Moody’s to rate individual debt instruments as low as Caa1and as high as Baa3.”


Excerpt from Standard & Poors Credit Alert of December 14, 2007:

As a result of the proposed LBO [of BCE by Teachers], Standard & Poors Rating Services expects reported debt to increase to about C$37 billion from about $10 billion at Sept. 30, 2007.
We originally placed the ratings on Credit Watch April 17, 2007. We subsequently we lowered the ratings on BCE in wholly owned subsidiaries to ‘BB-” from A- and kept them on Credit Watch Sept. 24, 2007.

On a pro forma basis, the company will have a highly leveraged capital structure, weakened credit measures, and significantly reduced cash flow generating capability owing to a dramatic increase in debt and the associated heavy interest burden.


Excerpt from the Telecommunications Act stating the policy objectives that govern Bell Canada:

7 (c) to enhance the efficiency and competitiveness, at the national and international levels, of Canadian telecommunications;

7 (d) to promote the ownership and control of Canadian carriers by Canadians;

Tuesday, January 29, 2008

The Monte Solberg Jim Flaherty good cop bad cop routine


Monte Solberg promises he wants to help the homeless. ... Flaherty wants to jail them.

Monte Solberg promised he’d never tax income trusts. ... Flaherty promptly taxed them

Good cop ... Bad cop

Looking forward to the day we can say:

Good bye ... Good riddance

Tom D'Aquino opines on BCE leveraged buyout


Tom D’Aquino of the CCCE felt the need to intervene with the CRTC on behalf of CCCE Member and CCCE Director, Michael Sabia, who also just happens to be the CEO of BCE and the individual who, for all intents and purposes, ran the BCE "auction" which was widely criticized.

See D'Aquino intervention here, under 2007-19

Here is D’Aquino’s flawed logic contained in his intervention. None of which, incidentally, relates to any of the Acts that the CRTC is duty bound to enforce:

D’Aquino:
“The proposed transaction approved by the majority of shareholders (Editor's note: actually 61%) of BCE, is a reflection of the market’s preference. The market should be allowed to prevail, subject to existing Canadian ownership and control requirements. To that end, I am indicating the CCCE’s support for the above-noted application by BCE Inc, related to its proposed transaction to change its ownership."

Rebuttal: How reflective of market forces governing the outcome of the BCE sale process is the following, as reported by Canadian Press?:

“The directors of BCE Inc. were kept in the dark about offers for the telecom giant by managers and advisers who manipulated the bidding process to freeze out bondholders in the sale of the company, lawyers for the bondholders said Monday.”

"Tom O'Neill, Jim Pattison and Donna Kaufman, the head of BCE's strategic oversight committee - testified they were unaware or couldn't remember seeing all the details of the bids or how they would affect all stakeholders."

How can Tom D’Aquino claim to know what the market’s true preference was, when BCE failed in its disclosure obligation to tell its shareholders about the Catalyst Proposal?

Is this the CCCE’s idea of good corporate governance and the free flow of efficient capital markets? Is this the CCCE's idea of how a Board of Directors of Canada's most widely held public company should function? Or any Board for that matter in fulfilling their fiduciary duty?If so, the CCCE has no credibility. If not, they should retract their stated support of the BCE takeout, in light of new unseemly information.

D’Aquino:
“The objective of the major investor, Teachers’ is to strengthen a Canadian enterprise in pursuing strategies for growth and value creation”

Rebuttal:
Teachers is not the major investor. They are only providing $4 billion of the acquisition price of $32 billion, of which the $26 billion in junk bond financing makes the new bondholders (Citibank, Deutsche Bank, Royal Bank of Scotland, etc.) the largest investors. See attached deal sheet from Teachers. The result is that BCE will become the most debt levered telecom company in the world with 3.6 times the Debt:Equity leverage of the average Telecom company. How will this help BCE grow as D’Aquino claims. More likely to default or divest. Meanwhile Tom D”Aquino should acquaint himself with the following articles and brush up on a few facts before putting pen to paper:

BCE Buyers May Have to Sell Wireless Unit to Pay Debt (Update2)
By Chris Fournier Bloomberg
January 15, 2008

Teachers' says bondholder win would threaten BCE buyout
By Carrie Tait, Financial Post
January 20, 2008

Not the straw but the camel
By Peter Foster, Financial Post
January 23, 2008

BCE objects to Catalyst being allowed to intervene at CRTC hearings into sale
By Ross Marowits Canadian Press
Jan 9, 2008

Bloc Québécois bloc transparency, thereby supporting veiled voters


Let’s be clear, the Bloc Québécois, in true xenophobic, vote-pandering fashion, are adamantly opposed to some 50 women wearing burkas to vote, and yet are doing their utmost to ensure that all Canadians are veiled from knowing the truth about the Conservative’s Income Trust Scandal in the next election.

Doesn’t sound like an very effective opposition party to me. More like complicit lap dogs. The Bloc Québécois have sunk to the lows of the NDP and the fiscal competence of Judy Wasylycia-Leis.

From now on the BQ should be referred to as the BT, as this party clearly has no interest in providing Canadians or Quebeckers with transparency. The Bloc Transparency party. The BT prefer to keep voters in the complete dark about matters of fiscal importance, such as the reasons why $65 billion in takeovers have occurred that are directly linked to the income trust tax policy. Evidently the BT party could care a less about whether one of Quebec’s most iconic businesses, BCE, falls into the hands of private equity, led by none other than ONTARIO Teachers’, rendering BCE a crippled junk bond sub prime mortgage-equivalent borrower.

The BT party has made itself an essential partner in the Conservative’s fraudulent income trust policy. The BT are now officially complicit in the cover up of the trust tax's fraudulent underpinnings, known as alleged tax leakage.

Yesterday the Bloc had an opportunity to demonstrate to voters what their core values are. To show whether they believe in transparency and accountability. To show whether they are effective as an opposition party in hiding the Stephen Harper government to account. Not held to account on the most recent handout to Quebec, but held to account on the underpinnings of what makes government’s work over the short and long term, namely transparency.

The BT party failed to support the following Liberal motion before the Finance Committee. Even though the BQ are adamantly opposed to voter’s wearing burkas in the polling booth, the BT support the notion that all voters be veiled from knowing the truth about income trusts and the false premise that income trusts cause tax leakage, when in fact the income trust policy cause tax leakage.

“That this committee as soon as possible launch an inquiry into the unproven allegation by the Finance Minister that income trusts result in a loss of tax revenue to Ottawa, in light of reports that 70% of all recent trust purchasers are tax-exempt, while individual Canadian investors lost tens of billions of dollars, and therefore pay less tax, as a result of the government trust decision."

Who needs the Bloc when we have other party’s that are more interested in upholding the foundations of a democracy, such as transparency. The Green Party would make a much more effective opposition party in Parliament than the Bloc Transparency party under Gilles Duceit. Gilles Duceit thinks it's okay to support a policy that is hollowing out Quebec and costing Canadians the loss of $1.4 billion in annual taxes. That’s a lot less in discretionary tax dollars that Canadians will have available to fund ongoing transfer payments to la belle province, or shall I say the former la Bell province.

The term Gilles Duceit derives from the fact that we were assured by senior Bloc MPs that the Bloc would support this Liberal motion before the Finance Committee. The term Bloc Transparency on the other hand is self evident and their actions yesterday as traitors to democracy.

Sunday, January 27, 2008

Saving Capitalism from the Capitalists:


Subtitle: Why didn't the CCCE "chide" Harper on Income Trusts?

Why is the CCCE so concerned about the ”policy chaos” over rules governing the environment? Why are they “chiding” the Premiers?

Speaking of chiding, where was the CCCE on the flip flop on income trusts and the chaos that policy enured? Isn’t the CCCE concerned about the resultant banana republic nature of Canada’s capital markets in the eyes of foreign investors, not to speak of Canadians saving for their own retirement? How can a capital market operate efficiently or fairly when a Prime Minister promises one tax regime and then delivers another? Retroactively no less, causing a permanent loss of $35 billion in hard earned investment capital? And offers no proof whatsoever to support the policy reversal? That is the act of a rogue government in the hands of a rogue Finance Minister. Or perhaps the rogue Finance Minister is actually in someone else's hands?

Meanwhile the CCCE remains deaf silent. Silence is complicity for a group that considers itself so powerful and so well populated by Canada’s great capitalists who routinely comment on virtually every development in this country.

I think Tom D’Aquino and his cohorts at the CCCE need to read the book entitled: “Saving Capitalism from the Capitalists”. How will Canada ever hope to become competitive on the world stage by destroying the investment vehicle that affords Canadian businesses of all sizes with a low cost form of capital and Canadians with an investment vehicle that suits their investment goals? The CCCE are proponents of a buggy whip economy and bespoke tax policies that coddle the status quo.

Saving Capitalism from the Capitalists is a non-fiction book by Raghuram Rajan and Luigi Zingales of the University of Chicago GSB. The full title of the book is: Saving Capitalism from the Capitalists: Unleashing the Power of Financial Markets to Create Wealth and Spread Opportunity.

The book is neither a defense of pure laissez-faire capitalism, nor is it an anti-capitalist polemic. Instead, the authors develop the following arguments in the book:

* The free market is the form of economic organization most beneficial to human society and for improving the human condition.
* Free markets can flourish over the long run only when government plays a visible role in determining the rules that govern the market and supporting it with the proper infrastructure.
* Government, however, is subject to influence by organized private interests
* Incumbent private interests, therefore, may be able to leverage the power of governmental regulation to protect their own economic position at the expense of the public interest by repressing the same free market through which they originally achieved success.
* Thus, society must act to "save capitalism from the capitalists" -- i.e. take appropriate steps to protect the free market from powerful private interests who would seek to impede the efficient function of free markets, entrench themselves, and thereby reduce the overall level of economic opportunity in society.

Question: Why does the outline of the book “Saving Capitalism from the Capitalists" so remind of this Globe article?

Income-trust crackdown: The inside story
November 2, 2006

“High-profile directors and CEOs, meanwhile, had approached Mr. Flaherty personally to express their concerns: Many felt they were being pressed into trusts because of their duty to maximize shareholder value, despite their misgivings about the structure. Paul Desmarais Jr., the well-connected chairman of Power Corp. of Canada, even railed against trusts in a conversation with Prime Minister Stephen Harper during a trip to Mexico, and told him he should act quickly to stop the raft of conversions, according to sources.”

Answer: Maybe its because Paul Desmarais Jr. is a Vice Chairman of the CCCE along with his industry colleague Dominic D'Alessandro of Manulife who had the most to gain by eliminating the competitive financial product known as income trusts.

Just think of them along with the CCCE as the "incumbent private interests who were able to leverage the power of governmental regulation [under the easily coerced Harper] government to protect their own economic position at the expense of the public interest by repressing the same free market through which they originally achieved success."

Page Three of this week's Hill Times


This half page ad on page three of this week's Hill Times is intended as just a little something to remind Stephen Harper about when Parliament resumes on Monday. As if he doesn’t have enough self inflicted problems to deal with. But that’s the legacy of his constant lying: income trusts, isotope shortage, Sandra Buckler, Afghan detainees, Brian Mulroney etc. etc. I'm losing track....about as fast as he's losing any semblance of credibility.

The list grows longer with every session of Parliament. Speaking of every session of Parliament, the Finance Committee gets to deal with the following gem in the coming days. It’s about time we got some facts on the table about income trusts, rather than partisan dogma and whitewash:

December 11, 2007

Brent:

Today I have sent this motion to the clerk of the Finance Committee:

"That this committee as soon as possible launch an inquiry into the unproven allegation by the Finance Minister that income trusts result in a loss of tax revenue to Ottawa, in light of reports that 70% of all recent trust purchasers are tax-exempt, while individual Canadian investors lost tens of billions of dollars, and therefore pay less tax, as a result of the government trust decision."

Garth

Hon. Garth Turner, PC, MP
Member of Parliament, Halton
House of Commons K1A 0A6 (613) 996-7046
86 Main Street, Milton (905) 693-0166
Daily blog, www.garth.ca
Email, garth@garth.ca

Taxation without Misrepresentation


Historical events no less significant than the American Revolution had at their roots the unfair taxation of the masses. In that case the British colonies of America objected to being taxed by the King and be without representation in the British Parliament. The rallying cry of the Boston Tea Party was "No taxation without representation". Out of that skirmish over the taxation of tea, arouse the American Revolution and the founding of the United States. The earliest flag of the United States was that of a coiled snake and the words: “Don’t tread on me.”

The income trust issue that is still very much alive today and which festers in the minds of those aggrieved by it, is not a case of taxation without representation, but rather a case of taxation by misrepresentation. The saga of the income trust matter is a saga of misrepresentation by our elected representatives.

First there was the misrepresentation by Stephen Harper and every Conservative MP that, if elected, they would never raid seniors’ nest eggs by taxing income trusts. That misrepresentation was offered up on a platform of other misrepresentations such as promising a government of transparency and accountability and the misrepresentation that a Conservative government would compensate Canadians on a timely basis for any losses they may sustain as a result of government legislation.

Upon electing sufficient Conservative Misrepresentatives of Parliament, Stephen Harper had a change of heart. He was now the target of the affections of those in the business community such as Gwyn Morgan and Paul Desmarais Jr. , who for their own selfish reasons were well served by eliminating the competition known as income trusts.

After misrepresenting to the marketplace that a Conservative government would never tax income trusts, it was reasonable to expect that certain businesses would use this climate of certainty as a welcomed opportunity to convert to the income trust model.

The announcement by Telus proved pivotal, since it forced BCE’s hand to make a copy cat announcement of its own.

This provided the “perfect storm” for those who were waiting in the wings to bring about a reversal of the income trust policy.

Key to this exercise was the role played by the bureaucrats in Finance. Mark Carney was the epicenter of the misrepresentations that then ensued. Here is the apologetic account of his role that appeared in yesterdays Globe and Mail:

“Mr. Flaherty, whose political experience was at the Ontario level, was more of an Ottawa neophyte than Mr. Carney. The senior official's advice soon became indispensable as the Finance Minister set about dealing with income trusts, getting to know and understand financial market players, and gauging the effect of a soaring currency and hurting manufacturing sector.

Mr. Carney was a hawk on income trusts, and felt strongly that they were a counterproductive blight in Canada's economy, holding Canada back in an increasingly competitive global economy. His arguments were crucial in convincing Mr. Flaherty and Prime Minister Stephen Harper that trusts should be taxed before some of the country's biggest companies opted to convert to tax-free income trusts.

The decision provoked a bitter and ugly backlash that continues to this day.”

Let’s examine these misrepresentations for what they were and for what the Globe and Mail still promulgated them as being:

- Income trusts were a counterproductive blight in Canada's economy.

-Income trusts held Canada back in an increasingly competitive global economy.

-Income trusts should be taxed before some of the country's biggest companies opted to convert to tax free income trusts.

One thing that I won’t take issue with is the statement that: “The decision provoked a bitter and ugly backlash that continues to this day."

What do you expect to occur when the government lies to the people and steals their life savings and renders their future’s less secure, all the while allowing Pension Funds to own income trusts tax free, allowing law firms and accounting firms to operate as income trust and to allow corporations to be tax free entities when it comes to paying interest on debt?

And if that isn’t enough, this mindless policy has induced real tax leakage in its attempts to stem phantom tax leakage. This is costing the Government of Canada and every tax paying Canadian $1.4 billion a year.

It’s a good thing there are Canadians with a greater interest in uncovering the truth than those who occupy the Main Stream Media, since it will only be because of our actions and our dedication that we will live in a society where we can achieve Taxation Without Misrepresentation.

There are still those who righteously live by the credo of “Don’t tread on me”, especially when it come to one’s own elected misrepresentatives.

Saturday, January 26, 2008

Like Stephen Harper, evidently seniors' group CARP is in the business of misleading seniors:


Stephen Harper is famous for having mislead seniors when he promised he would never raid seniors’ nest eggs by taxing income trusts. As bad as that broken promise was, he took his deceit to an even higher level by falsely invoking seniors in the Ways and Means motion by saying the goal of taxing income trusts was:

“strengthening Canada’s social security system for pensioners and seniors”

What a load of Stephen Harper Income Trust tax, that fraudulent claim surely is. A snake oil salesman exercise in false invocation of the vulnerable members of society.

Just like the following claim that CARP made in their February 2008 magazine ad that appears above which states:

“7. CARP has been vigilant in key financial areas like successfully fighting to preserve income trust tax status”

Well you could have fooled me. First the battle to preserve the status of income trusts for average Canadians on a par with that of pension funds and partners in law firms is far from over as no tangible progress has been made to right this inequity.

Furthermore any pending victory will not be something that CARP can claim any role in whatsoever. CARP is more concerned with preserving two of its major advertisers, Manulife Financial and Power Corporation owned Investment Planning Council than it is interested or serious about advocating on behalf of seniors for, since doing so conflicts with the interests of its advertisers.

By the way: What exactly is a CARP certified Investment Planning Council Representative? Does the OSC know about such an arrangement?

Don’t take my word for it concerning the utter lameness of CARP, here’s what Grover had to say on another blog site:

“Perhaps CARP really means that they successfully supported Flaherty in keeping the new tax thus helping him rob the very people that CARP should have been standing up for.

Sadly, I joined CARP once and quickly found out just how useless and spineless an organization it really is when it comes to things that actually matter such as fighting the unfair taxation regime imposed by Flaherty and Harper.

I let my membership lapse because I could no longer stomach their lack of action when it came to looking out for the financial well being of our aging investors.

Perhaps their initials should really stand for Conservatives Against Retired People.”

Stephen Harper: "Tacked and Weaved"? .... more like: "Lied, Concealed and Fabricated" !


Stephen Harper is truly a pathetic facsimile for a leader. In yesterday’s National Post article entitled “It's been two years, where will he go now?", we are privileged to learn about Stephen Harper’s self assessment of his two years in office and the unchartered nature of where he is headed, with the statement:

"Along the way, we've made the occasional mistake, but experience is a great teacher," Mr. Harper admitted. "We've listened. We've learned. We've grown. We have tacked and weaved in the face of wind and storm, but our final destination -- a better Canada for all of us -- remains the same."

To which Don Martin appropriately responded: "Okay, yuck."

As for "tacked and weaved", I wholeheartedly beg to differ, as I think Harper’s mantra and modus operandi is better summed up by Lie Conceal Fabricate. And I’m not just talking about the scandalous income trust treatment afforded by his back handed government.

Evidently Don Martin of the National Post is having a serious rethink about just how alive today the income trust betrayal is in the minds of voters.

On December 31, 2007 Don Martin tried to fly the lead balloon idea in reference to Jim Flaherty that Flaherty “seems to have finally put the income trust flip-flop behind him.”

More realistically, Don Martin yesterday pointed out that:

“The five priorities of the 2006 election, spliced into 170 Blue Book promises, have largely been met with only the odd flip-flop, the most spectacular being when the government reversed its position and opted to tax income trusts.”

Again, I beg to differ.

What Don Martin and all Canadians need to realize is that the income trust issue is about so much more than income trusts and about whether a government should have the right to summarily “raid seniors nest eggs” to the tune of $35 billion. The income trust issue is about whether we as Canadians have a transparent and accountable government as we were promised and as we should demand at the very minimum.

The central rationale for braking the income trust issue is the unproven allegation that income trusts cause tax leakage. Seldom is proof for the central tenet of a major policy so readily available and so easily discerned.

So where is it? Where is the proof of tax leakage? Where is the transparency derived from 18 pages of blacked out documents? Where is the accountability for this policy’s many adverse outcomes, apart from Flaherty’s reprehensible plea of “It’s not my fault”?

Apart from Diane Francis and occasional others, where is the press? As one example of the press' co-joined indifference: is the press not even remotely aroused by the fact that the government demanded that the 18 blacked out pages issued under the Access to Information Act be returned immediately?

Democracy should not be thought of as the default mode that societies like Canada revert to in the absence of ongoing scrutiny and vigilance by its citizens. Whereas plutocracies are.

That is the ultimate destination of the short journey on which Stephen Harper is taking Canadians when he is “tacking and weaving” and allowing an embedded plutocracy to take hold unfettered in this country that for lack of better definition goes by the name of Corporate Canada’s Controlling Elite (CCCE).

What’s their common modus operandi and jelly bean mentality?:

Answer: Lie Conceal Fabricate.

To quote Don Martin: “Okay, yuck”

To quote Diane Francis: “Prove the case or drop the tax”

Friday, January 25, 2008

Brian.....what are you afraid of revealing to Canadians this time around?


Today we are to understand that Brian Mulroney thinks the House of Commons Ethics probe is 'Unfair'

Brian Mulroney is going to have to learn to stop acting like the wounded puppy and start showing more contrition for his acts. A good place to start would be by being a little more co-operative and less indignant.

Personally I am most interested in whether Brian Mulroney lobbied Stephen Harper on behalf of Archer Daniels Midland to abolish the Canadian Wheat Board. Second I want to know whether he remitted GST on the $300,000 in cash he surreptitiously received from Karlheinz Schreiber. After all, it was Right Honourable Brian who implemented that most unpopular (at the time) tax. How deliciously hypocritical that revelation would be, if true.

And third, I want to see the complete file from the Canada Revenue Agency concerning the late payment of Mulroney's federal and provincial taxes on the $300,000 in cash he failed to declare except at a much later date under CRA’s voluntary disclosure program.


Probe 'Unfair': Mulroney
Committee has exceeded mandate, letter says
Allison Hanes, National Post Published: Friday, January 25, 2008

What a load of Stephen Harper's Income Trust tax


Title: Garbage in, Garbage out:

Subtitle: Ways and Means Motion to tax income trusts:

That it is expedient to amend the Income Tax Act, in accordance with proposals announced by the Minister of Finance on October 31, 2006, to uphold the value of fairness for Canadians by:

* levelling the playing field between trusts and partnerships and corporations,


* ensuring that taxes are not unfairly shifted onto the shoulders of Canadian taxpayers, especially Canadian families,

* strengthening Canada’s social security system for pensioners and seniors,


* helping corporations make choices that are consistent with economic growth and competitiveness, and

* bringing Canada’s approach to the taxation of trusts and partnerships back in line with other jurisdictions,


The only antidote to Stephen Harper's effluent tax policy nonsense, is a little truth which will soon be forthcoming now that Parliament resumes next week, and the following matter can be dealt with:

Brent:

Today (December 11, 2007) I have sent this motion to the clerk of the Finance Committee:

"That this committee as soon as possible launch an inquiry into the unproven allegation by the Finance Minister that income trusts result in a loss of tax revenue to Ottawa, in light of reports that 70% of all recent trust purchasers are tax-exempt, while individual Canadian investors lost tens of billions of dollars, and therefore pay less tax, as a result of the government trust decision."

Garth

Hon. Garth Turner, PC, MP
Member of Parliament, Halton
House of Commons K1A 0A6 (613) 996-7046
86 Main Street, Milton (905) 693-0166
Daily blog, www.garth.ca
Email, garth@garth.ca

In actual practice, Stephen Harper’s much vaunted “accountability”, is simply a vacuous jingle


Today we learn in the Globe and Mail, that Natural Resources Minister Gary Lunn claims that ”There’s no need to independently review firing of nuclear watchdog”. How very convenient. How very unaccountable.

This level of utter non accountability is so reminiscent of Finance Minister Jim Flaherty’s statement of “It’s not my fault” when confronted with the reality that his income trust tax had induced over $65 billion in takeovers, the vast majority by foreigners, with the result that $1.4 billion in annual taxes were now being lost.

Which leads to the obvious question: If it’s not the Finance Minister’s responsibility to be held to account for the causal outcomes of his actions, then whose responsibility is it? Is he suggesting that it is the fault of the people who elected him to Parliament? Or perhaps it is the fault of the person who placed him in a position of Cabinet authority for which he is so utterly lacking in competence to properly execute?

Accountability with the Harper government is a facile and vacuous jingle that, in practice, simply means “go pound sand”.

Although it needs to be acknowledged that Harper's unaccountable regime does have another nifty moniker for your consideration: Canada’s New “It’s Not My Fault” Government

Thursday, January 24, 2008

TD Bank's prominent role in BCE takeout: Coincidence or imbedded conflict of interest?



The quasi-auction of BCE to private equity consortia in June 2007 was a direct consequence of the undervaluation of BCE that occurred as the immediate aftermath of Jim Flaherty’s denying BCE from carrying through with its announced intention to convert to an income trust and Stephen Harper’s reversal of his solemn election promise to never “raid seniors’ nest eggs” by taxing income trusts.

One person’s adversity is another person’s opportunity, and there are many interests that are well aligned to exploit the opportunity presented by BCE’s resultant undervaluation. TD bank is one of them. At least that was the plan.

As a result of the proposed highly debt leveraged buyout of BCE, by a group consisting of Ontario Teachers’, and US investors Providence, Madison Dearborn and Merrill Lynch, Canada’s largest telecommunications carrier will go from being Canada’s most widely held company to the private preserve of four institutions, three of them foreign. Such an outcome flies in the face of the Telecommunications Act whose goal is “to promote the ownership and control of Canadian [telecom] carriers by Canadians.”

Meanwhile here’s what proud new US investor Providence had to sat about their new catch of the day:

"This is a unique opportunity to contribute to and participate in the growth of one of the world's most significant communications companies," said Jonathan M. Nelson, Chief Executive Officer of Providence Equity Partners.”

I don’t suppose that comment will form part of BCE’s presentation when they go before the CRTC on February 25, 2008 to seek approval for this sale, since the CRTC’s role is to uphold the legislated goals of the Telecommunications Act. Providence will own 32% of BCE, Madison Dearborn 9% and Merrill Lynch an unspecified lesser amount.

The other adverse outcome of the leveraged buyout of BCE is that the $34.8 billion purchase price for the equity of BCE is being funded with a mere $6.7 in equity and the remaining $28.1 billion is borrowed money. This borrowed money comes from the company itself and not from the equity purchasers, hence the name leveraged buyout. As such the $28.1 billion in new debt used to fund the leveraged buyout will be in addition to the already $10 billion in outstanding debt. As such, these new buyers are purchasing a $52 billion acquisition wih less than $7 billion of cash.

As a consequence BCE will go from being an investment grade credit borrower that had complete access to the equity markets to one whose debt will be rated as junk bond status and with no access to public equity markets. It’s no wonder the bondholders are suing, since such an outcome was never foreseeable in their wildest dreams. This outcome is also counter to the other policy objective of the Telecommunications Act which is “to promote the efficiency and competitiveness of Canadian telecommunications”.

Given the capital intensive nature and rapid technological changes in telecommunications that will be a difficult objective for the privatized BCE to fulfill, given its new high cost of capital that it will be burdened with both in terms of the high cost of equity capital and the exceedingly high return thresholds of private equity and the burdensome cost of BCE’s sub prime debt ratings otherwise known as junk bonds. Meanwhile an alternative exists known as the Catalyst Proposal that averts all of these negative outcomes. Catalyst intends to intervene before the CRTC to acquaint them with the choice that is available to BCE as the country’s largest telecom carrier.

In order to be successful in bringing together this leveraged buyout, the leveraged buyout consortium needed two things in the immediate term Shareholder approval and a syndicate of lenders to provide the $28.1 billion leveraged buyout loan. To achive the latter, the Teacher’s consortium turned to a group of 50 banks led by Citibank, Deutshe Bank and Royal bank of Scotland. Of these 50 banks, TD Bank was unique in that it was both a shareholder of the company to be acquired and a lender to the group who was acquiring BCE. Furthermore TD Bank wasn’t just simply a garden variety lender to the buying group, it was what is known as a bridge equity lender, which carried with it risks and rewards that were greater and which were exclusively tied to approval by BCE shareholders of which it is one.

In fact TD Bank’s TD Asset Management is the second largest shareholder of BCE with 46 million shares, next only to Teachers’ who owns 50 million shares. However unlike Teachers’, TD Bank is not the beneficial owner of these 46 million shares that are registered in its name. Nor are TD Asset Management’s clients’ the beneficial owners of these shares. In fact a very large portion of these shares are shares that are held passively by TD Bank as part of an TSX index portfolio that it is the custodian of and in which BCE is one of the most heavily indexed wighted stocks. Meanwhile it still gets to vote these shares, as if they were the owner. That's hardly kosher.

So the question then becomes, is it merely coincidence or a conflict of interest that TD bank is reported to be the only Canadian Bank amongst a syndicate of 50 banks and certainly the only Canadian Bank with the lucrative and yet high risk role bridge equity provider, whose very risk and reward is determined by the outcome of a successful shareholders’ vote. At the very least, TD Bank should have dealt with this conflict of interest and/or perceived conflict of interest by asking that the shares that they hold passively as part of a passive index portfolio be excluded from the vote tally for purposes of approving a deal, whose outcome affected them in a significant collateral way, namely as a bridge equity provider.

Selling coal to Newcastle



You really have to hand it to our esteemed leader, Stephen Harper, as he has solved one of the great riddles of our time: How to sell coal to Newcastle.

Except in his case, it involved selling Canadian oil and gas properties to Middle Eastern oil interests, specifically the $5 billion purchase of Prime West Energy Trust by Abu Dhabi Energy , a state owned enterprise controlled by Sheikh Zayed bin Sultan Al Nahyan, whose modest personal residence and fleet of Bentleys, Mercedes and BMW's are pictured above.

Now that Sheikh Zayed owns one of the largest energy income trusts in Canada, and Hong Kong billionaire Li Ka Shing now owns TransAlta Power Income Fund, it has become quite clear who Stephen Harper had in mind when he wrote the following words in the National Post in 2005:

"Seniors are actually enraged, frightened and panicked about potentially losing retirement savings that they count on for the essentials of daily living."Income trusts are popular with seniors because they provide regular payments that are used by many to cover the costs of groceries, heating bills and medicine. They also provide tax relief from a government that is addicted to taking too much money from their pockets and spending it without care, and very often without meaningful results.

So one must ask, why is the government clamping down on the retirement savings of seniors and investors?”

Well Stephen, that is a most insightful question that you posed in 2005, that demands an answer in 2008, since, in the end, it was you who did the clamping and not the Liberals. It was you who promised never to raid seniors nest eggs, only to turn around and do that very thing.

Obviously you have a particularly close place in your heart for the world’s billionaires, as they seek safe havens to invest their abundant wealth in. Perhaps you derive your affinity for the lifestyles of the rich and famous from your wife Laureen, when you let it slip that your wife Laureen thinks that Bill Gates is “the worlds sexiest man”. Not because of Bill Gates’ philanthropy, but based on Laureen Harper’s reasoning that "when a man has that much money, he's sexy".

Well that pretty much explains the Harper family mindset and value system. Welcome to the third world, Canada style. It's too bad that Stephen and Laureen Harper don’t think that it's “sexy” to honour election promises, or see the sexiness associated with the act of seniors being in a position after a life time of hard work of being to have sufficient income from their investments to “cover the costs of groceries, heating bills and medicine”.

Evidently I am not alone in my questioning of the merit of selling the assets that provide the basis for Harper’s other bold assertion that Canada is an Energy Superpower, while Harper is simultaneously encouraging and fostering the sale of those very assets to middle eastern oil companies on the cheap. Assets that were otherwise happily owned by average tax paying Canadians,

Stephen Harper solved the age old conundrum of how to sell coal to Newcastle by imposing a draconian 31.5% tax on the 20% of Canada’s oil and gas production that is held in publicly traded trusts and the 80% of Alberta’s energy infrastructure assets that are held in publicly traded trusts on the average Canadians who owned, while allowing foreign big oil to be free from this tax.

In addition, Harper further advantaged foreign big oil to acquire these newly undervalued trusts by relieving big oil of the growth restrictions that Harper imposed on these businesses whilst in the hands of average Canadians. Harper furthered greased the slides of takeovers by foreign big oil by eliminating the 15% withholding tax these players would have had to pay on the debt they used to acquire these companies. The technical term for such an unlevel playing field is called event driven arbitrage. In layman’s terms its called a sweetheart deal for the rich and famous.

And what is Industry Minister Jim Prentice’s words to Abu Dhabi Energy’s future acquisition ambitions in Canada? Please, help yourself. Your petrodollars are most welcomed here, in a way that average Canadians’ are not.

Next on Harper’s agenda will be solving the problems plaguing the Canadian automotive manufacturing sector. Rather than helping fund the start up of the idled Ford engine plant in Windsor, Harper has better use for that $60 million. It’s a sure thing. Canada will soon be opening the new Bentley dealership in Abu Dhabi to cater to the uber wealthy carpetbaggers from the middle east who have just struck oil in Canada.....of the most viscous and greasiest kind.

P.S. Did I mention tax leakage?

Wednesday, January 23, 2008

CRTC and BCE: Let your voice be heard



The CRTC is holding pubic hearings on February 25, 2008 into the purchase of BCE by Teachers and 3 US Private Equity funds, Providence, Madison Dearborn and Merrill Lynch. CRTC approval is required for the deal to proceed.

The deadline for submissions to the CRTC is by the end of tomorrow (January 24, 2008). It is very easy to make a submission, as described below.

Any party wishing to do so, can express their views to the CRTC in advance.

The Teachers’ transaction will turn Canada’s largest telecom company into a junk bond issuer with no access to public markets, from what is presently Canada’s most widely held public company with broad access to capital via its public status and investment grade credit ratings.

This junk bond transformation into a narrowly held private company is not a recipe for success in a capital intensive industry that is experiencing rapid technological change. This is not the way to reduce the cost of telecom services or enhance service offerings for Canadians. This is not why Bell Canada was granted an effective oligopoly license. Government granted oligopolies should be two way streets. These new buyers are mere financial buyers and not industry players per se.

It is estimated that the leveraged buyout of BCE by these private equity players will result in the loss of $793 million in annual taxes to Ottawa, given the deductibility of interest from taxable income and the elimination by the Harper government of the 15% withholding tax paid by foreigners on leveraged buyout loans. Foreigners are the source of virtually all of the BCE leveraged buyout loans, coming from groups like Citbank, Deutsche Bank and the Royal Bank of Scotland.

It is obvious that the leveraged buyout is a marginal proposition for the buyers, as there is rumour hat the will have to spin off core assets to pay down the mountain of debt and the deal only makes sense if the Bell bondholders take an $800 million hit. All, in order that management and their advisors can experience a $250 million+ personal pay day from accelerated stock options, retention bonuses and free carried interests in the newly privatized BCE and advisory fees.

If you feel this is not a good outcome for a company that is regulated by the CRTC, then it is very easy to let your voice be heard. Simply fax (819-994-0218), mail or upload your letter to the CRTC via the following instructions.

It is very obvious that BCE and Teachers are out “trolling” for letters in support of this transaction, as there are submissions from a number of groups like Kids Help Phone and others who are closely tied to BCE and Teachers, like Carol Stephenson of the Ivey School of Business, Michael McCain of Maple Leaf Foods, the Canadian Chamber of Commerce, and the Ontario Chamber of Commerce. All of these parties are closely linked economically to either Teachers’ and/or BCE.

Meanwhile the CRTC’s job is to uphold the policy objectives of the Telecommunications Act and the Bell Canada Acts, whose explicit policy goals are:

Bell Canada Act:

The works of the Company are hereby declared to be works for the general advantage of Canada.

Telecommunications Act:


7(c) to enhance the efficiency and competitiveness, at the national and international levels, of Canadian telecommunications;

7(d) to promote the ownership and control of Canadian carriers by Canadians;

How does the Teachers’ deal achieve these ends, when there was an alternative that served everybody’s objectives , including consumers, whose interests the CRTC is mandated to protect?

Other interventions can be viewed here.

Here are two questions that were asked at BCE’s June 2007 Shareholders Meeting that were obviously dismissed by the Board and management of BCE, but are probably representative of where most well informed Canadians are on this issue:

Question:
Unidentified Woman: Concerning the privatization of BCE, I would like to make the following points: Given many small, individual shareholders are retirees, who have invested their savings in BCE for their save and attractive dividend; Given many shareholders have bought their shares more than 20 years ago, they will take a big tax hit should the privatization of BCE go ahead. Since the original cost of their shares cannot be adjusted for inflation — it has been significantly lowered because of stock splits and spin offs — there will result an over-inflated capital gain taxed at a higher marginal rate plus additional tax brought on by clawbacks. Furthermore, in some cases, they may be required to make advanced tax payments to governments in the form of provisional accounts. Given that the public pension funds are exempted from capital gains tax, they can disregard fiscal consideration and push for the privatization of BCE in order to get a higher prize for their BCE shares — an action detrimental to the small, long-term shareholders, who do have to pay capital gains tax and will incur an extra tax burden because of clawbacks. My question is for Mr. Sabia: How much weight are you prepared to give to the very real concerns of long-term shareholders in the face of the privatization of BCE, which, personally, I don’t think will enhance the value of my shares. Thank you.

Question: Stanley Goldstein: Long time shareholder of the company. I’d like to pick up the comment of [the] shareholder earlier. Does the oversight committee, management, have a plan in place a pro-public ownership plan and if so, might you share with us the essence of its component parts. I ask this because you mentioned in the beginning in your the speech about the changing landscape, about privatization, etc. But the transfer of the ownership of a telecom company is not like the transfer of ownership of a concessionaire of the hot dog stand at Bell Centre. There’s easements, rights of way, spectrum, Section 7 of the telecom act, there’ll be regulatory review, there’ll probably be parliamentary review, we see winds of change in the country, but icons of Corporate Canada transferring to foreign ownership. And I ask this question because as someone who’s been around the industry for a long time, I expect the regulatory process will be long and protracted, and some of the conditions of the transfer of ownership might be exacting and will impact the cash flow expected by the buyer. And so we might still be here next year, talking about this issue, and where will that leave the shareholders? And so therefore, I come back to the question, about having in place and sharing with us a pro-public ownership plan. Thank you.

Proof of concept: Harper's fiscal incompetence


In today’s Ottawa Citizen we learn that the “Party faithful are set to pick economy as next hot-button election issue.”

It’s one thing to advance a concept. Quite another to prove it.

If the opposition parties are intent on making Canadians aware of the fiscal incompetence of the Harper government, the income trust tax affords the opposition parties with the perfect “proof of concept” example.

The concept being that Harper is fiscally incompetent and deceitful to boot

Virtually every Canadian voter is aware of the income trust issue and the loss of savings that many Canadian experienced from this election flip flop. Many Canadians harbour the belief that Stephen Harper was compelled to act in the manner that he did.

This widespread belief is only reflective of the success with which Stephen Harper and the CON party were able to advance the “big lie”, known as tax leakage.

The Big Lie can easily be laid to waste. And with it, the Harper government and any belief that they are competent managers of fiscal affairs or a party of integrity.

The first step is to acquaint Canadians with the fact that the only evidence of tax leakage is 18 pages of blacked out documents.

The next piece of evidence is that the government demand that these blacked out documents be returned, after they realized how much damaging information is contained.

The next step is to acquaint Canadian with the $65 billion in trust policy takeouts that have occurred, that have already induced $1.4 billion in tax leakage to solve an alleged $500 million tax leakage problem, that was never proven to exist on the first place.

Next is to acquaint Canadian with the knowledge that the Department of Finance knew this takeover outcome would occur.

The next step is to acquaint Canadians with who it is who benefits from this policy, namely Big Lifecos like Manulife and Power Corp’s Great West Life and London Life, foreign private equity firms like Brian Mulroney’s Blackstone Capital, foreign big oil firms like Abu Dhabi Energy and Hong Kong billionaires like Li Ka Shing.

Next in line is to acquaint Canadians with the role played by former Goldman Sachs investment banker, Mark Carney, who was catapulted into his present capacity of Governor of the Bank of Canada

The last step is to simply reveal tax leakage for the total fraud that it is. This matter is well underway, what with the Green Party’s call for an inquiry into alleged ax leakage. And answers to the following motion currently before the Finance Committee by Liberal MP Garth Turner:

"That this committee as soon as possible launch an inquiry into the unproven allegation by the Finance Minister that income trusts result in a loss of tax revenue to Ottawa, in light of reports that 70% of all recent trust purchasers are tax-exempt, while individual Canadian investors lost tens of billions of dollars, and therefore pay less tax, as a result of the government trust decision."

Monday, January 21, 2008

The highly evasive Mark Carney on the price of tea in China


Below is the testimony provided by Mark Carney before the Finance Committee on December 5, 2007.

At that point in time, income trust investors had lost over $35 billion in their life savings because of the income trust tax policy that Mark Carney was responsible for while in the Department of Finance. This policy was designed to deal with the alleged tax leakage that was caused by income trusts. Mark Carney’s proof for alleged taxleakage takes the form of 18 pages of blacked out documents.

When asked about the negative consequences of his tax policy on Canada, as it pertained to the $40 billion in takeovers that it had induced and the loss of over $1 billion in tax revenue loss that it had cost, Mark Carney provided MP Garth Turner with a very evasive answer that went off on some tangent about how the stock market was up over the last year and a half.

What does that have to do with the price of tea in China? And now that you mention it, the TSX is no longer “up” in value, since it has lost over 10% of its value in the last four trading days, essentially wiping out all the gains that you were so effusive about.

When will you answer Garth Turner’s question about the takeovers and loss of taxes that your policy resulted in? Or have you moved on to greener pastures in your new role as Governor of the Bank of Canada?


Hon. Garth Turner
: A year after the decision more than $40 billion in Canadian trusts have basically been sold and it would appear that the better part of a billion dollars worth of tax revenue is not flowing into government treasury that was before.
Given that, I have two questions. One, did you anticipate the consequences of the advice that you gave the minister? Secondly, how can you consider to be anything other than a failure?

Mr. Mark Carney
: I'll refer to my previous answer, which is that I'm not going to go into the details of advice given to any minister of finance or any minister of the Crown that I gave as a civil servant. I will point out though, as a macro fact, that over the course of the last year-and-a-half, as I'm sure you're aware, the TSX, the largest market, is up substantially. We have a $1.6 trillion market cap on the TSX. It's important to keep context--

Hon. Garth Turner: I know that and I'm not interested in the TSX--

The Chair: I'm sorry, Mr. Turner, allow Mr. Carney to finish answering the question.

Hon. Garth Turner:
No I'm not because that's not what I asked him. He can answer a question I didn't ask him if he wants--

The Chair:
Do you have another question, Mr. Turner?

Imagine if the TSX were down 17.8% and it WAS the government's fault?


Perhaps with the TSX down 10% during the last four trading days, people can get a better appreciation of what it was like and continues to be like for income trust investors who believed Stephen Harper when he solemnly pledged he would never raid their nest eggs by taxing income trusts. These folks experienced a 17.8% drop in the value of their savings. A loss of retirement savings that is perpetuated to this day.

That precipitous move by Harper and Flaherty is the largest loss willfully inflicted on citizens by any government, ever. It has cost 2.5 million Canadians over $35 billion of their life savings and every tax paying Canadian the loss of $1.4 billion in ANNUAL taxes to date .

I think Stephen Harper has a penchant for nuclear meltdowns. He is not fit to lead our country. Difficult times calls for competent and steady leadership. Not shoot from the hip dogmatic nonsense, which in the case of income trusts, Stephen Harper was spoon fed by lobbyists , Gwyn Morgan, Paul Desmarais Jr and Dominic D’Alessandro

Calculation of $35 billion loss:

The income trust market closed on October 31, 2006 at 164.86 as measured by the S&P/TSX Income Trust Index. On the evening of that same day, Finance Minister Jim Flaherty announced that he would introduce a 31.5% tax on income trusts. Two days later the index was at 138.21, This represents a loss of 16.2% which on a $200 billion market represents a loss of $32.5 billion. Two weeks later the index was at 135.51 representing a loss of 17.8% or $35.6 billion.

Friday, January 18, 2008

Harper treats us like unequals



Treats us like unequals? That’s the title of an article in today’s Leader-Post.

Let’s examine that claim as it relates to Stephen Harper’s decision to tax income trusts after he promised he would never raid senior’s nest eggs by making such a move.

As a starting point, Harper has allowed pension funds to own income trusts in their private equity portfolios free of the 31.5% tax and the 75% of Canadians without pensions can not? That sounds decidedly unequal to me.

Meanwhile as "compensation" for his draconian income trust tax, Harper has granted those 25% with pensions the right to split their pension income with their spouses or common law partners, whereas the 75% of Canadians without pensions can not. That sounds decidedly unequal to me.

Interest on corporate debt can be serviced with pretax cash flows, but distributions on income trusts can not. That sounds decidedly unequal to me.

Interest on corporate debt can flow to foreign investors free of any taxation, but distributions on income trusts can not. That sounds decidedly unequal to me.

Harper’s mini budget called for corporate tax rates to be reduced by 34% by the year 2012, and yet no such corresponding reduction on the income trust tax . That sounds decidedly unequal to me

John Manley and his 700 fellow lawyers at law firm McCarthy Tétrault LLP can participate and own a tax flow through partnership, but average Canadians seeking retirement income can not. That sounds decidedly unequal to me.

The pension plan of newly minted Bank of Canada Governor and architect of the Income Trust tax, Mark Carney’s own pension plan, the Public Sector Pension Plan can own Thunder Energy Trust, free of any 31.5% tax and growth restrictions, but average Canadians can not. That sounds decidedly unequal to me.

The resultant undervaluation in the trust sector, allowed the Public Sector Pension Plan to act in a predatory manner, working hand in hand with the civil servants who provided this legislative “carve out” and who are its beneficiaries. That sounds decidedly unequal to me.

And yet before being caught with their hands in the cookie jar, the Public Sector Pension Plan felt compelled to make this statement of self admission:

“Our exceptional level of liquidity provides us with a competitive advantage vis-à-vis others (Read: the average Canadian) in capturing the return premiums offered on less liquid (Read: private equity) investments.

Of course, as investors we are not called upon to formulate government policy...but we do have to make assessments of the potential impact of these various forces and factor those assessments into our investment decisions.”

Sure, we believe you. Just like we believe that our illustrious leader treats us like equals, or not, as the case may be:

Harper treats us like unequals
Murray Mandryk, Special to The Leader-Post
Published: Friday, January 18, 2008