A giant charts its future


A giant charts its future


A giant charts its future


Jean de Grandpré and the company he heads, Bell Canada Enterprises Inc. (BCE) of Montreal, share a number of contradictory characteristics. Both are part of Canada’s corporate establishment, but the company and its chairman often display an ambitious and tough-minded determination to win. Since 1983, when BCE was created, de Grandpré has struggled as chairman to turn the cash-rich holding company from a nervous acquisitor into the aggressive entrepreneurial company that he envisions. And despite diversification into other business areas—oil and gas, printing and real estate—BCE’s rank as Canada’s most profitable company continues to depend largely on revenues earned by Bell Canada, its regulated, wholly owned telephone utility. Many of its attempts to expand have had only limited success, while others have been lost to quick-footed rivals. But recently, in a bold move that surprised the business community, BCE tightened its grip on the Canadian telecommunications industry. After having lost last February in a bid as part of a consortium to buy Crown corporation Teleglobe Canada, BCE last week bought a large stake in the company that won that competition, Montreal-based Memotec Data Inc. Teleglobe holds a lucrative five-year monopoly on all Canadian overseas telecommunications signals. By purchasing a one-third interest in Memotec, which owns Teleglobe, BCE has propelled itself into the forefront of international telecommunications carriers. And because Bell Canada is Teleglobe’s biggest customer currently, the deal has secured BCE its future access to international links. Despite the BCE buy, Memotec president William McKenzie said that his firm will maintain voting and policy control. Still, BCE executives say that they are still learning the business of mergers and acquisitions. Last week they continued to deliberate on whether subsidiary TransCanada PipeLines Ltd. should make a second bid for Dome Petroleum Ltd. Last month TransCanada offered $5.3 billion for Dome but was outmanoeuvred by Amoco Canada Ltd. BCE itself is the product of a cor-

porate shuffle aimed at freeing Bell Canada from the restrictive federal regulations that prevented it from diversifying into other industries. Under the new structure, BCE emerged as an unregulated holding company, with ac-

cess to the cash generated by the telephone utility. Last year Bell Canada made a profit of $683.9 million on revenues of $6.3 billion. That torrent of cash has helped BCE to acquire 12 sub-

sidiaries during the past four years, including 48.5 per cent of TransCanada PipeLines Ltd. and 65.8 per cent of BCE Development Corp., formerly Daon Development Corp. Said Dominik Dlouhy, an executive vice-president with investment dealer Dean Witter Reynolds (Canada) Inc. of Montreal: “All that cash

makes them desperate to buy things.”

The epicentre of the

$23.7-billion BCE empire is de Grandpré’s 22nd-floor office overlooking Montreal’s Mount Royal. A member of one of Quebec’s most respected families, the 65-year-old chairman and chief executive is regarded by asso-

ciates as an autocratic leader with a penchant for involving himself in every aspect of decision-making at BCE. De Grandpré’s attention to detail is legendary. When BCE was negotiating

to build a new head office in downtown Montreal two years ago, he is reputed to have insisted on approving every contractor involved in the land survey, including soil testers and site surveyors.

De Grandpré and a small group of his senior executives took just 48 hours to make their final decision in early May to spend $196 million on a one-third interest in Memotec. That demonstrated that although BCE is Canada’s most widely held public company, with more than 338,000 shareholders, power at BCE is tightly controlled. Said Stuart Spalding, BCE’S executive vice-president of finance and one of the chairman’s closest advisers: “De Grandpré is very active, very involved and has the final word on everything.”

But some critics claim that de Grandpré’s management style is more suited to running the Bell utility than controlling the holding company. Said Andrew Roman, a Toronto lawyer who has battled Bell in court and before government regulators for 13 years on

behalf of telephone consumers: “They have a fantasy that they are go-go capitalists. But they still can’t run a business.”

Indeed, the company’s conservative approach to acquisitions has forced it to lose out on some potentially valuable opportunities. In 1985, after months of study, de Grandpré cancelled plans to bid for Gulf Canada Corp. And last year TransCanada Pipelines withdrew from a rapidly escalating bidding war for Hiram Walker Resources Ltd. Said Spalding: “Acquisitions are a tough game, but we be-

lieve our conservative approach is in our shareholders’ best interests.”

Some close observers of the company also say that bureaucratic struggles for authority among

the BCE subsidiaries, as well as top managers jockeying for posi-

tion to eventually succeed de Grandpré, have made BCE a political minefield. In 1985 a decision by de Grandpré to merge the Bell and Northern Telecom Ltd. pension funds fostered open hostility among executives at its communications equipment manufacturing subsidiary. And officials within the company say that following the publicly embarrassing and still unresolved dismissal of two senior BCE pension fund managers in February, 1986, de Grandpré was harshly criticized by some of the pension fund’s joint venture partners for failing to control the situation. Said Richard Jones, a Toronto lawyer who warned de Grandpré of the unrest: “Bell is Byzantine in terms of its internal politics.”

Many observers also blame internal politicking and a clash of business styles for the early retirement on Dec. 31 of Robert J. Richardson, then BCE’s

president. Richardson was once widely expected to succeed de Grandpré as chairman. But Richardson has confided to friends that his activist approach in managing the company—a manner acquired during a previous career as an operational executive at Du Pont of Canada Ltd.—never meshed with the more cautious style promoted by de Grandpré and Spalding.

But one area in which BCE’s corporate style is not as conservative is its generous compensation policies. At $977,300, de Grandpré’s 1986 salary package made him one of the highestpaid executives in Canada. BCE is also openhanded with departing executives.

Under terms of the settlement, former company president Richardson or his beneficiary will receive $19,250 every month for the next 20 years.

For de Grandpré, the Teleglobe stake is something he has long sought. As the largest user of Teleglobe’s facilities, Bell officials have always enjoyed a close working and social relationship with Teleglobe management. Indeed, JeanClaude Delorme, Teleglobe’s president and chief executive officer, was the best man at Spalding’s wedding in 1960. But last winter, when Ottawa auctioned off Teleglobe as part of its current privatization program for Crown corporations, Bell rejected an offer to participate in a joint bid with the then-little-known Memotec. Bell was already bidding with another consortium—and lost to Memotec’s $488.3-million offer.

Undeterred, BCE then attempted to

buy into Memotec. The first overtures were made indirectly through the Toronto-based underwriting firm of Burns Fry Ltd. But those discussions broke down in early May and Memotec announced plans to proceed with a $150million public share offering to raise the money needed to help pay for Teleglobe. Then, BCE’s Spalding intervened, telephoning Ronald Meade, a longtime friend and a founder of Altamira Capital Corp., one of Memo tec’s major shareholders. Spalding warned him that BCE’s interest in Memotec was a now-or-never proposition. “The Memotec people are proud of having built this shell of a company into a real force, and they

were worried about sacrificing their independence,” said Spalding.

But Memotec officials also were concerned that when Teleglobe’s monopoly on overseas telecommunications expires in 1992, BCE would likely emerge as a tough competitor. Added Spalding: “We made it clear that this was their last chance to get on side.” Two days after that call, BCE and Memotec concluded an agreement under which, officials from both companies insist, Memotec will remain in control of Teleglobe. The purchase agreement also puts strict controls on BCE’s investment, including limits on its ability to vote for directors.

Still, many analysts say that it is a shrewd acquisition. Indeed, some say that Teleglobe may be even more valuable to

BCE in Memotec’s hands because the federal government established Teleglobe’s rate of return on its asset base higher than some other domestic carriers. And, said David Stenason, an analyst with Montreal investment dealer Lévesque, Beaubien Inc., “the federal government gave Memotec much more favorable treatment than it would have given Bell.” For de Grandpré, who has confided to some associates that he would like to finish his career as a Canadian ambassador to France, there is still unfinished business at BCE. Indeed when the BCE board asked him to stay at the helm last year, de Grandpré recalled that they said: “You’ve launched an organization that is still in diapers. You can’t leave right now.”