Crown corporations are companies that are established and ran by the government. I’m not talking about things like police service, or fire protection or the like, no I’m talking about government owned telecoms, utilities and banks. American readers probably aren’t familiar with those kinds of crown corporations since they’re primarily a Canadian and European phenomenon.
The Canadian examples are numerous. The Government of Alberta owns a bank, Alberta Treasury Branch. The Ontario Government owns every single liquor store in the province and nuclear power plants through its power company. Federally, the Canadian Government owns many crowns, some examples being a tv station, (CBC) a mortgage insurance company and a railroad, among others.
The bastion of crown corporations has to be Saskatchewan. The province owns all the liquor stores, the power company that supplies the entire province, the provincial telecom, all auto and home insurance, as well as a tv station and all sorts of corporations that assist farmers. It almost seems like the province owns everything.
Governments have sold off crown corporations before. Air Canada used to be a crown. So did Petro Canada and CN Rail. Provincially, Alberta and Manitoba both privatized their crown telecom corporations, forming Telus and MTS respectively. Even Saskatchewan has sold off crown corporations before, privatizing Potash Corp back in 1990.
Being that we’re in a time of large government deficits and difficult economic times, is it now time for governments to start to sell the crowns?
There are some great assets in the crowns. Alberta’s Treasury Branch made over $125 million dollars last year. Growth also looks to be good. As an Albertan, I can attest to the terrific job ATB does competing against much bigger banks. ATB is a terrific company that would probably sell for 15 to 20 times earnings if it went public.
The government of Alberta is in pretty good shape compared to some of the other provinces. Ontario is currently dealing with a massive deficit. According to wikipedia, the Liquor Control Board of Ontario (LCBO) made 1.2 billion dollars last year. Valuing it at even 10 times earnings would give the government enough to almost wipe out this year’s deficit.
Considering how drastic the situation is among provincial governments, each one of them has to take a long look at selling some of their crowns. If you believe that a private company would do a better job at running liquor stores or a telecom like I do, then perhaps some of the crowns could create a bidding war for their assets. Sasktel is worth more to Telus or MTS than it’s worth to just about anyone else. If you’re the province why not at least enter into negotiations with interested parties? Maybe they think the synergies created are worth paying a ridiculous premium.
Saying that, perhaps right now isn’t the best time to sell these assets. While the debt markets have come back from the 2008 doldrums, they aren’t quite rolling like they were before the recession. Valuations for acquisitions have been higher, maybe governments would be better off waiting for a better time to sell.
Either way, I think the elected officials in each province owe it to their constituents to listen to offers that come along for the crowns. You never know when some company will overpay.