Archive for March, 2011

With the federal election under way, it’s time to predict the outcome. I think Stephen Harper will gain a few seats, but not enough for a majority. Here are my numbers: Conservatives up seven seats to 150, Liberals down three to 74, Bloc up three to 50, NDP down three to 33, and one Independent. Michael Ignatieff resigns and the next Liberal leader is Dominic LeBlanc, the MP for the New Brunswick riding of Beausejour. Jack Layton steps down and the next leader of the NDP is Olivia Chow, Layton’s wife and the MP for the Ontario riding of Trinity-Spadina.

Research In Motion’s financial results reported yesterday were excellent by any measure. In the fiscal year ended February 26, the company shipped 52 million smartphones, up 43 per cent from the previous year, revenue rose 33 per cent and earnings per share jumped 47 per cent.

But the devil’s in the details, say the all-powerful analysts who follow RIM. Earnings per share in the fourth quarter were $1.78, better than the consensus of analysts at $1.76. But revenues were $5.56 billion, slightly less than consensus of $5.64 billion.

The company’s guidance for the next quarter was lower than consensus but RIM’s estimate for the next full-year earnings per share was $7.50 versus $6.81 for the consensus. All in all, you’d think that such results and official expectations would be enough to add zest to share price.

Well, you’d be wrong. In after hours trading yesterday, share price fell more than 12 per cent. When markets open this morning, prices will fall to match that outcome. And all this with RIM’s PlayBook about to go on sale in twice as many retail outlets as Apple’s iPad.

I don’t own RIM shares, but I’m fed up with herd-mentality analysts who overlook record results and focus instead on their unfounded fears. I know that past performance is no guarantee of future results, but I think the pendulum has swung too far. Too many good companies and their shareholders suffer as a result of analysts who like to move markets, especially down, all for the sake of personal aggrandizement and bragging rights.

Of all the sectors where you might expect to see foreign ownership rules relaxed, I’d put Canadian book publishers last on the list. But apparently, Ottawa is considering ending the policy banning foreign firms in the business, according to John Barber in The Globe and Mail. There is even support from the likes of Lionel Koffler of Firefly Books. Of course, several major foreign houses – Penguin and Random House – are already here but they have to provide benefits to Canada.

Nationalist though I am, I agree it’s time to open the borders to all comers. It’s clear that the current protectionist cultural policy is not working. Major Canadian publishers including Key Porter and Stoddart have fallen by the wayside in recent years despite government aid. Many other Canadian houses stay alive only because they distribute popular non-Canadian authors such as Barbara Cartland or Maeve Binchy. Public money going to this sector is being wasted.

But if we’re going to allow a free market in book publishing, we have to change a few other cultural rules, too. For example, why should profitable magazines such as Maclean’s and Chatelaine receive annual subsidies from government in excess of $1 million. Why should the Canada Council or the Ontario Arts Council continue to subsidize book publishers? There was a time when such grants paid for author promo tours but so few writers tour anymore that the money might as well go to other artistic pursuits. Some authors may receive part of their advance on royalties from such programs. The last time that happened to me was 1986. Since then, I have refused any such payments on the basis that I am an established author and any money should go to first-timers. If that’s still going on, the amounts must be so minuscule as to be worthless.

As a final argument, I would say that governments should no longer support an industry where the largest proportion of the marketing budget for most books is paid to bookstores such as Indigo and Chapters to buy prominent display. That’s the dirty secret of this business. Turns out that selling books is no different from selling Kraft Peanut Butter. If you want your product on the end cap where a consumer might see it and buy on impulse, you have to pay. Since books have become no different than other consumer goods, we might as well level the playing field and make the rules the same as they are for everyone else. No more hat in hand; no more heart on sleeve.

I was fortunate to grow up in the glory days of hockey. Born and raised in Guelph, where the Biltmore Madhatters were the Junior A farm team for the New York Rangers, I cut my teeth watching Harry Howell, Dean Prentice, Andy Bathgate and Leapin’ Louie Fontinato. In high school, Jean Ratelle and Rod Gilbert were fellow students. Eddie Shack was doing his patented end-to-end rushes. As they moved through town, the players were part of the community. Brian Webber, who played on a line with Shack and Bill Sweeney, married an older sister of a friend. Between periods we’d go across the street from Memorial Gardens into the kitchen of the Green Rooster restaurant for French fries. They were good and they were greasy. The Biltmores won the Memorial Cup many a time.

The last time I saw a hockey game was at Maple Leaf Gardens maybe fifteen years ago. I was so sickened by the time wasted fighting I vowed I would never watch another game again. Sorry to be a purist, but where is the speed and prowess of yesteryear? These days, teams hire enforcers to injure top players. This is a strategy? It’s only recently that things have got so bad I’ve begun to pay attention again. It’s impossible not to. In the midst of setting a new scoring record, Sidney Crosby, the best player in the game, is given a concussion by a no-name that could end his career. This week, Zdeno Chara drove Max Pacioretty into a stanchion. This isn’t hockey; it could have been manslaughter. Chara gets a wrist slap. He’s the captain of the Boston Bruins. This brutal way of playing has reached its tentacles into the establishment. By not cracking down on such hits, the NHL condones the goons and condemns the good players to target status.

All this in the name of pleasing fans in the deep South where boys and girls hardly play the game growing up. It makes no sense to me to ruin our national game to chase a will-o-the-wisp audience. Anyway, it isn’t working. Scalpers routinely get a mere $10 a ticket in the lower bowl to watch the Atlanta Thrashers.

Restoring the game needs drastic action. Eject from the league anyone who sends a player to hospital or has more minutes of penalties than points in a season. Bring back deft passing, good defence and canny goaltending. Who knows? The fan base might even grow. And if the current bozos in the arena don’t like the new, clean, high-flying action, they’ve got an alternative: mixed martial arts. Now there’s a sport worthy of the decline and fall of the Roman Empire. Put two wackos in a wire cage and let them pummel and kick each other until the blood pours. Oops, that sounds like hockey.

I said I swore I’d never watch a game again but I have a four-year-old grandson who plays hockey so I have recently been back in the cold seats on a Saturday morning. Last week he scored three goals to lead his team to victory. Will his natural skill make him a marked man some day for a goon who can’t score so needs to ruin a young life to get ahead? Grandparents unite! Bring back the glory days. If not for the fans, for our loved ones.

Lost in the debate about the merger of the Toronto and London stock exchanges is exactly how a budding young company would be better off raising funds. Despite their claims, don’t forget, the stock exchanges don’t actually do the heavy lifting, they only provide the listing.

Take Research In Motion as an example I know well. Founded in 1984, it wasn’t until 1995 when going public was even considered. RIM was tiny, only 25 employees working in 2,500 sq ft in Waterloo, Ont. Revenue was $4 million. RIM had made a huge sale, $8 million, but the customer was slow to pay. Cash flow dried up and their lender, Bank of Montreal, was pressuring RIM to make payments and threatening to take over the company. RIM couldn’t find another lender willing to replace BMO.

Suddenly, out of the blue, an angel in the form of Rob Fraser of Griffiths McBurney Partners (GMP) called. GMP was an upstart Toronto-based investment banking firm, looking for entrepreneurs like Mike Lazaridis and Jim Balsillie, co-CEOs of RIM, in need of money. In May 1996, GMP introduced RIM to some likely financial backers in Toronto. Balsillie explained circuit and packet switching in a way that a child could understand. Circuit, one-way, is broadcast TV. Circuit, two-way, is cellular and voice. Packet, one-way, is paging. Packet, two-way, is the future and nobody’s there but RIM.

First to hear the story, Adam Adamou of Working Ventures, wanted in. Second call was to Frank Mersch at Altamira. He interrupted the presentation after three slides, pounded the desk, and said, “I want the whole deal. I’ll give you $50 million right now.” The next three calls were equally positive and by the end of the day RIM had commitments for $93 million.

That June, RIM did a private placement with five institutional investors for one-quarter of the company that raised $31.7 million after fees. RIM paid off the bank (whose tune suddenly changed to helpful) and had plenty of capital to grow. In October 1997, GMP did an initial public offering for RIM that raised $115 million (including $6 million in fees for GMP). Once again, the stock exchange was not involved except to provide the listing.

Fast forward to today, and the financing process is little different. Imagine a Canadian company like RIM, in a brave new world where the stock exchanges in Toronto and London have merged, going to London armed with a PowerPoint presentation. With no help from the London Stock Exchange, this company is wandering from Kensington to Canary Wharf, trying to get a hearing. The only Waterloo any of these toffs know is the battle where Wellington beat Napoleon. “Oh you have a university there, too? Never heard of it.” My wife and I have lived in London. I’ve worked there. I know how the English regard Canadians. We’re colonials, so far down the food chain we would’t get the crumbs from Oliver Twist’s bowl. Would the hearing be any better in Bruges or Berlin, Zurich or the Zuider Zee? I doubt it.

Even if the modern-day entrepreneur has drummed up some interest at home, if she’s going to list in London she still must hire local investment bankers, lawyers and accountants in London (thereby doubling her costs and further reducing her share). So tell me again, I may have missed it, exactly how does this proposed merger help a Canadian entrepreneur get to the next level?

Canada is a small capital market, only two-to-three per cent of the global business. It’s hard enough for the entrepreneur with fewer than 100 employees and $25 million in revenue to get attention. If she has to go to London, she might as well go to Lourdes. Heavenly intervention is more likely than fresh funds from the Brits or Europeans. Let’s stop this proposed merger before we become the lesser partner in a deal that does no good for those who need the most help, Canadian business looking for financing, and may indeed do some harm.

Whatever happened to Rob Ford, fearsome campaigner who was going to clean up Toronto City Hall? Since his election, His Honour has acted like any other good old boy who finally gets to put his boots on the boardroom table. He revels in the being but does nothing. Oh, he’s cut out snacks at council and made noise about more subways, but the crusader who intended to stop the gravy train seems to have just sat down at the banquet table and continued to eat. Why he’s even asked the Province of Ontario for $350 million to fix potholes, just like every other mayor who has worn the chain of office. Premier Dalton McGuinty wisely blew him off.

The first sign Rob Ford was all huff and no puff was his inauguration ceremony in December conducted by that other fine specimen of a man in public life, Don Cherry. Grapes must be the only man around who takes more time to get dressed than figure out thoughtful things to say.

In office, Rob Ford has not tackled the bloated civil service, union contracts, consultants, or welfare. I know, he’s only been serving for three months but any new office-holder’s image is pretty much firmed up in the first hundred days, and Rob Ford is beginning to look like all of his do-little predecessors. To be sure, I cashed the $60 refund cheque he sent me because I’d paid for two years licence plate renewal, but I would have been happier if he’d kept the money and did something with the cash for the public good.

To date this Ford is no penny-pinching Escort, he’s a hulking Expedition taking us for a ride.