Re: Bell Canada: A Canadian Solution is being proposed by Catalyst Asset Management ("Catalyst") that will preserve Bell Canada as a standalone public company for the net economic benefit of Canada and all stakeholder groups including consumers



    TORONTO, June 22 /CNW/ -

    
    Summary Benefits of Proposed Catalyst Transaction:
    --------------------------------------------------
    -   preserves existing Canadian ownership and control of Bell Canada
    -   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
    -   preserves Bell Canada Head Office in Montreal
    -   beneficial outcome to all Canadians and Canada
    -   maximizes tax collection to Ottawa from the earnings of Bell Canada
    -   value maximization alternative for Bell Canada common shareholders
        through use of Stapled Securities and the enhanced annual income of
        $2.55 per existing Bell Canada common share, a 74% increase from
        Bell Canada's current annual dividend of $1.46
    -   eliminates "reinvestment" risk for Bell Canada common shareholders
    -   allows existing Bell Canada common shareholders to participate in
        ongoing future growth of Bell Canada
    -   tax efficient transaction via a share exchange that places retail
        investors on a more equal footing with large pension fund investors
    -   preserves financial flexibility for Bell Canada to continue with
        significant capital reinvestment in its core businesses to remain a
        leading and growing competitor
    -   no regulatory or timing risk when compared with alternative private
        equity and merger alternatives that will involve extensive
        parliamentary, regulatory, CRTC and competition review with an
        uncertain outcome and uncertain timing
    -   zero transaction risk as transaction is self funding
    

    Summary of Catalyst Transaction:
    --------------------------------
    The proposed transaction will be completed by way of an exchange offer by
a Canadian Corporation formed exclusively for this purpose ("Bidco"), whereby
Bidco will offer one Stapled Security of Bidco in exchange for each
outstanding Common Share of Bell Canada. Each Stapled Security of Bidco will
consist of one underlying Bidco Common Share and one Bidco Subordinated Debt
Security. The combined dividends and interest per Stapled Security will be set
at an initial annual rate of $2.55 per Stapled Security. This compares with
the current dividend of $1.46 per Bell Canada Common Share.
    Following the successful purchase of Bell Canada by Bidco, the two
corporations will be amalgamated to form New Bell Canada.

    Background:
    -----------
    BCE, recently renamed as Bell Canada, is presently the target of takeover
by three separate private equity bidding groups, that would result in this
iconic Canadian company falling into the hands of predominantly foreign
capital. Alternatively, it is being proposed that Bell Canada be acquired by
Telus and that their separate operations be merged into one, thereby
dramatically reducing the competitive landscape in Canada for
telecommunications services, to the detriment of consumers and employment in
this important knowledge based industry. In addition to being negative for
consumers, either outcome would be collectively detrimental to all Canadians
and the various stakeholder groups involved, including common and preferred
shareholders, debt holders, as well as the employees of Bell Canada.
    On the Telus acquisition alternative, it was reported in the press:
    "That all changed, when Telus revealed it's now in merger talks with Bell
Canada. The government can no longer afford to stay on the sidelines. Voters
notice their phone bills, and the monthly cost of cell phones and Internet
service sure isn't going down if there's one less competitor in telecom. And
massive layoffs, including the gutting of a Montreal head office, are in the
cards if the two dominant phone companies are allowed to join forces."
    On the private equity takeout alternative, David Cole, President of the
CEP union had this to say:
    "Bell Canada owns the largest phone company in the country and it is also
one of the major players in print and broadcast media. Canadian legislation
limits the amount of foreign ownership in these sectors and this takeover of
Bell Canada threatens to violate the intentions of those restrictions. I think
Prime Minister Harper should send an unequivocal message to the investment
community that he will not allow foreign interests to take control of these
key economic and cultural development industries."
    On the proposed merger alternative, NDP party spokesperson Ian Capstick
had this to say:
    "At first blush, we're extremely concerned because it does represent one
of the largest mergers of this nature in the telecommunications business in
Canada. Canadians are already paying too much for their cell phones and we're
going to have to examine very closely the deal. And certainly we would always
reiterate that we believe Parliament has a role to play."
    Capstick said the party wanted to "stand up for those who have made these
companies what they are," including trade unions.
    Meanwhile many of the other stakeholders are also ill served by a private
takeover of Bell Canada. The debenture holders have seen the value of their
investment erode by some 20% in the face of this pending transaction. The
market value of Bell Canada's preferred shares has been materially weakened.
Meanwhile all Canadians will suffer as a result of this iconic Canadian
telecom company going into private hands and under the virtual control of
foreign private equity. This has not happened to any other legacy telecom
carrier anywhere else in the world and would unlikely be allowed to proceed in
any other jurisdiction, particularly in the presence of an alternative
transaction that would preserve Bell Canada as a standalone entity and as
Canada's most widely held public company and in a manner that maximizes the
value of the company to existing Bell Canada shareholders and all other
stakeholder groups. Such an alternative, known as the Canadian Solution, is
being proposed by Catalyst Asset Management Inc. of Toronto, who is seeking an
Advanced Tax Ruling from Ottawa in order to confirm the application of long
standing tax measures governing the interest deductibility of acquisition debt
and the rollover provisions of a share for share exchange.

    The Canadian Solution:
    ----------------------
    This alternative transaction being proposed by Catalyst Asset Management
Inc. of Toronto would preserve Bell Canada as a broadly held standalone
Canadian owned and controlled public company. Additionally it would preserve
the present competitive landscape in the Canadian telecommunications market
and prevent this important market from returning to a virtual monopoly
situation similar to that which previously existed and which had been
abandoned in favour of greater competition and the resulting benefits for
consumers.
    Meanwhile, under the Canadian Solution, existing Bell Canada shareholders
will preserve all the future growth potential of the company. Current taxable
shareholders of Bell Canada will be faced with a major tax liability if they
are forced to take cash for their shares under any one of the going private
proposals. This will leave many longstanding shareholders who have invested in
Bell Canada for its stable dividend, with dramatically less cash proceeds to
reinvest to replicate their former income. This issue is of widespread concern
amongst existing Bell Canada shareholders and was highlighted by shareholders
at Bell Canada's recent annual meeting in Montreal. The situation of
triggering unwanted capital gains does not exist for the Pension Funds, like
Ontario Teachers' Pension Plan who, as Bell Canada's largest shareholder, is
free from such capital gains tax concerns.
    The Canadian Solution will put all of Bell Canada's shareholders, both
large and small, on a more equal economic footing. Most importantly, the
Canadian Solution would permit all existing Bell Canada shareholders to
achieve a full valuation for their shares by recapitalizing the resulting
company in a value maximizing manner, akin to how these various private equity
bidding groups will capitalize the company, or how Telus will finance its
acquisition, through the efficient use of debt. However, the Canadian Solution
will be done in a manner and on terms that are not oppressive to existing Bell
Canada preferred shareholders and bondholders and notably will preserve Bell
Canada as Canada's most widely held public company and preserve the
competitive landscape in this key industry segment.

    Stapled Securities:
    -------------------
    Under the Canadian Solution, existing Bell Canada shareholders will
receive one Stapled Security in exchange for each common share of Bell Canada.
Each Stapled Security will trade as one security even though it consists of
two discrete elements, a common share component, a corporate debt component
and the potential for a preferred share component. The corporate debt
component will be subordinate to all outstanding debt of Bell Canada. The
preferred share component will be subordinate to any outstanding preferred
shares of Bell Canada. In this manner, the Canadian Solution is not oppressive
to these two classes of Bell Canada's capital in the manner in which the
going-private alternatives are currently being viewed by the market.
    The Stapled Securities will be offered to all existing Bell Canada common
shareholders by way of a share for share exchange offer, which will allow
taxable Canadian shareholders of Bell Canada with the ability to transfer a
portion of the adjusted cost base (ACB) of their Bell Canada shares to their
new Stapled Securities, thereby avoiding excessive triggering of capital
gains. This will have the desirable effect of placing these shareholders on a
more equal footing with the Bell Canada shareholders who are pension funds.
The portion of a Bell Canada shareholder's ACB that can be transferred to the
Stapled Security will be equal to the deemed equity component of the Stapled
Security.

    Value Maximization:
    -------------------
    Existing shareholders would maximize the value of their current
investment in three ways.
    First, the Stapled Securities being offered as consideration would be
received in a tax efficient fashion, preserving maximum economic value for all
shareholders, individuals and pension fund investors alike.
    Second, the Stapled Securities will be structured in a manner whereby the
combined interest income and dividends on each Stapled Security will be
greater than the existing dividend on Bell Canada common shares. It is
anticipated that the Stapled Securities will have an initial payment of
combined interest and dividends equal to $2.55 per Stapled Security or $2.55
per former Bell Canada common share. Bell Canada currently pays dividends at
the annual rate of $1.46 per share. On the ability to service a combined
payment of $2.55, Bell Canada CEO Michael Sabia previously had this to say:
"We've assessed very carefully the issue of payout ratio and the level of
distributions in general in a manner that gives us a very high degree of
confidence in our ability to continue to invest and grow and develop the
business."
    Third, Bell Canada shareholders will retain all the upside inherent in
their existing Bell Canada investment and not be faced with reinvestment risk
associated with the cash proceeds from any of the alternative going private
transactions.
    At the recent annual shareholders meeting, Bell Canada's CEO, Michael
Sabia, spoke about Bell Canada being at an important "inflection point" in its
business and he feels all the hard work of the past five years under his
leadership is about to bear fruit in the form of a better positioned and more
profitable company. Therefore, it could be argued, now is not the time to sell
Bell Canada shares and be faced with the reinvestment risk of identifying a
new investment with similar income and growth potential if such an alternative
even exists. Furthermore, under the Canadian Solution, any new regulatory
changes that are on the horizon, such as the possible relaxing foreign
ownership rules or the like, will accrue to the benefit of its long standing
existing Bell Canada shareholders and not its new private owners.

    Transaction and Regulatory Certainty:
    -------------------------------------
    Both of the alternative transactions involving either the purchase of
Bell Canada by private equity or the merger of Bell Canada with Telus, entail
numerous regulatory approvals and reviews and most likely a parliamentary
review. The timing and outcome of these reviews are not certain, and may
affect the resultant transaction in ways not anticipated by the market or the
parties involved. The uncertainty of this outcome represents risk to Bell
Canada shareholders and the affected stakeholder groups. The Canadian Solution
is free of any such risk and uncertainty, as the Canadian Solution preserves
Bell Canada in its present day form, and only involves a change in
capitalization and not ownership or control.

    Catalyst Asset Management Inc.
    ------------------------------

    Catalyst Asset Management Inc. is a Toronto based investment banking and
advisory firm founded in 2005 by its Executive Managing Director, Brent
Fullard. Prior to founding Catalyst Asset Management, Brent spent 20 years in
Canadian investment banking industry, most recently as Executive Managing
Director and Head of Equity Capital Markets for BMO Nesbitt Burns. During his
career in investment banking, Brent has been personally responsible for
leading financings on behalf of a number of significant Canadian
telecommunications companies including the initial public offerings of
Clearnet Communications, Bell Canada International and BCE Mobile (today Bell
Mobility).

    Signed: Catalyst Asset Management Inc.





For further information:

For further information: please go to www.canadiansolution.ca or contact
us at info@canadiansolution.ca or by telephone at (647) 505-2224

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Catalyst Asset Management Inc.

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