As corporate blunders go, BCE Inc.'s fumble of the Astral Media Inc. takeover was a whopper. Ma Bell struck the agreement in March, then breezed through public hearings as though it was a fait accompli—only to be stunned when the federal broadcast regulator said no. At press time, the two companies were still trying to rescue their deal; if they can't, BCE will pay a $150-million breakup fee. Arrogance has a high price tag.
But despite that—in fact, partly because of it—the man who conceived the deal, George Cope, was my favourite among the candidates for Report on Business magazine's CEO of the Year.
Of the current crop of S&P/TSX 60 CEOs, none has altered the perception of his company the way Cope has. I know that by saying so, I will likely be accused of bias. BCE owns 15 per cent of The Globe and Mail, which publishes this magazine. But its minority stake is just that (it has one seat on our board) and we are free to cover the company as we would any other Canadian outfit–sometimes to the chagrin of Cope and his executives.
The case for Cope begins with the question that American presidential candidates like to ask voters: Are you better off than you were four years ago? For BCE shareholders, the answer is yes. Telecom companies have been riding a nice tailwind, mind you. In a shaky economy, investors want stable businesses that pay dividends. Still, Bell's performance since the true beginning of the Cope era—Dec. 11, 2008, when a rich takeover bid from a private-equity group collapsed–beats Telus and Rogers Communications. A 128 per cent total return, including dividends, tends to ease the pain of a failed deal.
But to appreciate what Cope has done, you need to understand not the stock chart but what BCE looked like when he got the job in 2008. For six years, it had been run by Michael Sabia, who was maligned because he seemed to have fixed the stock price at $28. Trader Mike accomplished some important things–-, restructuring the balance sheet through a series of deals such as the $3-billion sale of Yellow Pages Group, for which he was derided. That doesn't look quite so dumb now, does it?
The big moves of the Sabia era were all about financial engineering, though, which underscored that he was Not Really a Telecom Guy. Outside the boardroom, BCE was an industry heavyweight that punched like a lightweight. It did silly things, like slashing prices, that market leaders shouldn't do. It also failed to address clear weaknesses. Take the wireless business. Selling smartphones is a retail game, yet for years Bell did little to improve its dowdy, undersized network of stores. That's one reason Rogers added hundreds of thousands more wireless customers than Bell did during Sabia's final years on the job.
Cope, however, looked at ideas from a new angle. When Circuit City went bust and put its Canadian arm on the block, others saw a third-rate retailer; Cope saw a way to fix Bell's retail disadvantage on the cheap, so he bought its 750 locations and turned them into places you could buy a Bell phone or TV package. Where others looked at Telus as the bastards who tried to sneak into the 2007 auction for BCE, Cope saw an ally against Rogers. The two telcos built a shared wireless network that allowed them to break Rogers's monopoly on the iPhone, just as it was becoming the device of choice. And where others saw CTV as a declining network or a crummy investment (or both), Cope saw a chance to build a long-term advantage over Bell's competitors.
The jury is still out on whether his strategy of owning broadcasters and sports teams will help Bell win TV and wireless subscribers. But it took guts to propose it. BCE, remember, bought CTV for $2.3-billion in 2000, then dumped most of its stake in 2005. Who would go back to the board and say, "You know that thing we sold at a huge loss? Let's get it back." Cope did.
Astral was to be the last major piece of Cope's television strategy, positioning BCE not merely as a bigger player in Canadian broadcasting but as a dominant one. The surest sign that this was a good idea was how loudly his competitors squawked. Quebecor Inc.'s Pierre Karl Péladeau warned darkly that the merger would create "a monster in front of us." That was precisely the point.
Cope pushed his luck too far with the increasingly consumer-focused CRTC. When the regulators rejected the bid in October, on the grounds that it didn't serve the public interest, Cope again did the atypical Canadian CEO thing: He went bananas. BCE issued the most hotheaded press release ever: "The CRTC fell head over heels for [the cable companies'] carefully orchestrated and well-funded propaganda effort that made a mockery of the entire process." Furious George kept going the next day, calling the regulator's decision "absurd." Cope may live to regret saying that. But his words represent a fighting spirit the company didn't have before him. Under his watch, BCE has gone from being fearful to being feared.
Derek DeCloet