With barely concealed disappointment, Radcliffe Latimer admitted defeat. In a surprisingly brief takeover attempt last week, he emerged as the clear loser. Seated in his grey-toned 55th-floor office in Toronto’s financial district, the president of TransCanada PipeLines Ltd. (TCPL) diplomatically assessed the fact that Bell Canada Enterprises Inc. (BCE) of Montreal had snapped up 42 per cent of his company despite his strong recommendation to shareholders not to respond to Bell’s “unreasonable” $31.50-a-share offer. “Bell surprised us with the initial offer,” he declared, “and they have surprised us with the size of the position they have bought.” Then, to avoid offending TransCanada’s new controlling shareholder, he added, “We look at Bell as a first-class major shareholder to have.”
Latimer’s acknowledgment ended one of the smoothest takeover battles in Canada’s recent corporate history. It pitted Jean de Grandpré, the ruling giant of Bell Canada Enterprises’ $13.4billion telecommunications empire, against Latimer, who runs the $4.7-billion pipeline and natural gas company with a less authoritarian but equally successful manner. The two men were
uneasy adversaries. Not only are they personal friends, but de Grandpré sits on TCPL’s board. That did not prevent TransCanada from adamantly opposing the Bell bid with corporate countermeasures after Bell acquired Dome Canada’s 11.8-per-cent holding in TCPL on Dec. 5. But last week, as the results of the tender were counted on the nation’s four stock exchanges, the favorable response of shareholders surprised analysts, TransCanada and even the victor, Bell. The results: for a total of $605.5 million,
Bell scooped up 42.29 per cent and effective control of TransCanada and the 10,000 km of natural gas pipeline it operates, including Canada’s main line which transports all of Eastern Canada’s gas from the western provinces.
The investment community was puzzled when Bell launched its foray last month. First,
Bell bought the Dome holding for $167.2 million; then it announced that it was extending the offer to TransCanada’s remaining shareholders.
Analysts professed surprise that BCE, the recently formed parent of the Bell Canada phone company, would be interested in a regulated company when the conventional wisdom was that Bell was intent on expanding further in the telecommunications business. But as J. Stuart Spalding, vice-president of finance for Bell, told Maclean’s, TCPL’s attractions include its sound management and the fact that it operates in a stable regulatory environment. Still, no one was more surprised by the bid than Latimer. He insisted that he “did not have an inkling of Bell’s intentions” until the evening of Friday, Dec. 2, when de Grandpré called him in Toronto and asked for an immediate meeting. Just hours before, the Bell board had approved the plan, and in an hour-long meeting de Grandpré outlined Bell’s intentions to Latimer. The session, said Latimer, was friendly. Still, TransCanada moved quickly to develop a counterstrategy. After urgent meetings on Saturday, Sun-
day and Wednesday, the company announced that it had rejected Bell’s offer for all outstanding TransCanada shares as “financially unreasonable.” Many analysts agreed, pointing out that the $31.50-per-share offer was only a 9.1per-cent premium over the current trading price. Some experts contended that the company’s healthy earnings outlook, bolstered by its regulated earnings in the pipeline business, made it likely that its shares would be trading in the $36 range within 12 months.
Convinced that the Bell bid was too low, TransCanada’s board declared that it and senior management would not sell their shares, and it announced a 37-per-cent increase in an upcoming dividend. That inducement was designed to encourage shareholders to retain their stock, because under the Bell offer those selling their shares would not be eligible for the dividends. At the same time, TransCanada announced that it would propose a two-for-one stock split at a shareholder meeting in February. That decision, Latimer said, was designed to improve the liquidity of the stock remaining after the outcome of the Bell bid was known.
The futility of TransCanada’s efforts became clear last week. Latimer told Maclean's that those who sold their shares viewed TransCanada “as a regulated utility with slow growth prospects.” Those who held on to their shares, he added, accepted the company’s opinion that its intended expansion of its nonregulated $1.4-billion oil and gas business held out the prospect of rapid growth and high profits. Indeed, TransCanada’s record is already impressive. Last year it made $199 million, and in the first nine months of 1983 alone its profit was $161 million.
Clearly, those analysts who recommended that their clients sell to Bell were not as enamored of TransCanada’s prospects in the currently depressed oil and gas sector. Still, Jonathan Cunningham, an analyst with Montrealbased Nesbitt Thomson Bongard Inc., was critical of his colleagues in the investment industry. Many brokers who recommended selling were merely interested in showing a profit for their customers at the end of the year, he said. “In some cases, portfolio considerations outweighed long-term evaluations of the company.”
Following the takeover, Latimer predicted a harmonious relationship between TransCanada and its new majority shareholder. De Grandpré, he pointed out, had personally assured him that there would be no changes in the management or the corporate direction of the company. Concluded Latimer: “I think that Bell has struck a very shrewd bargain, and more power to them.”
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