Canada's Telecom Income Trusts Derailed

I haven't been commenting much recently on the chess game going on between Telus and Bell about converting themselves into income trusts. This is a sexy investment vehicle, and to many, it just looks like a tax scheme designed to pass the burden from the carriers on to investors. That may be oversimplifying things, but there's a lot of truth to that. There's more going on of course, and I'm going to point you to two posts that have reported that latest news, and it's pretty significant.

In short, both Telus and Bell looked to be well on their way to making this happen, when late today, our Finance Minister issued a statement outlining a "Tax Fairness Plan" for Canada. In short, it looks like the federal government is going to overturn this process, meaning that Bell and Telus will not become income trusts and the status quo will remain.

This is a very interesting turn of events, and will undoubtedly drive our stock markets here in the morning. With this looking like a done deal for so long, the markets have already factored this into share prices, especially Telus. So, expect a bumpy ride for these two tomorrow. Trick or treat!

It's also very interesting to note that the strongest competitor after Bell and Telus is Rogers. Well, guess what? They're not talking about income trusts, and they just announced street-beating Q3 results today. Not only are their metrics great, but they've announced a 2:1 split and a 113% increase in their dividend. How's that for giving back? With performance like this, the Federal government has a pretty good precedent for saying that Bell and Telus are fine just the way they are. Talk about letting the air out of a balloon. This one isn't over, but it's a potent reminder that as powerful as Bell and Telus are, there are higher forces at work to keep them in check - rightly or wrongly.

Fellow bloggers Mark Evans and Mark Goldberg both have strong insights about these developments and I urge you to follow them for more detailed coverage. Great posts, guys.

Technorati tags: , , ,