The CEO of Telus (T.TO), Darren Entwistle, recently announced that he will be exchanging his 2010 Salary for Shares of Telus. Supposedly he is so confident in the future of the company that he is willing to forgo his cash salary. Is this a dubious ploy by the company to attempt to snap the downward spiral of the shares value? Will this work to jump start the stock?
Recently, I received an email from the PR Firm representing Telus about the great move by the CEO of Telus to show his support for the company. I will provide a copy of the email below followed by my opinion about Telus.
Word for Word:
Hi Stuart,
I’m not sure if this is right down your alley, but I saw that you have an interest in telecommunication, so thought I’d reach out on behalf of TELUS.
Being from Vancouver, I’m sure you’ve heard, but in case you haven’t, TELUS CEO, Darren Entwistle is betting the whole farm on the company’s success and performance in 2010. Recognizing the huge potential and opportunity for growth, particularly in wireless, that TELUS has for 2010, Entwistle has taken the initiative to demonstrate to the board, analysts and investors how confident he is in the future of the company by exchanging his 2010 salary for shares.
Earlier today, Entwistle told analysts that he is “confident in the opportunity that our company has in the coming quarters and years ahead in creating sustainable value.” He also said, “…I’ve recently informed the TELUS board of directors that I’ll be taking the entirety of my 2010 annual cash salary compensation net of taxes in TELUS shares.”
I don’t think it’s often you see CEOs show this much confidence in their organization. However, if this isn’t something you’re interested in, I apologize for the inconvenience.
Please feel free to contact me should you have any questions.
Thanks,
~Yvonne
Yvonne Yuen
Wilcox Group
MY Thoughts
Telus was once one of the great members of the Telecommunications Oligopoly of Canada. They have enjoyed fat margins on their wireless products by colluding with Bell and Rogers much like the OPEC Cartel colludes to force higher oil prices in the World. Can you prove this? No way. These companies walk a fine legal line and never forget to dot their T’s and I’s or throw in the odd law suite to cover their bases.
Telus, Bell, and Rogers no longer form an Oligopoly in the Canadian Wirelss market because of new service providers such as Globalive, but their strangle hold remains. This strangle hold is beginning to slip however and the new entrants to the industry will force cellular plan prices lower which will result in smaller profit margins for the industry. Look to the stock markets reaction to the news of the only new National Wireless Carrier being approved to operate and you will see considerable declines to Telus, Bell, and Rogers share prices.
As you can see in the above chart of Telus (T) the long term up trend was broken back in September while a mid term up trend that formed later was broken in December. The mid term trend can obviously be correlated with the Government of Canada’s decision to override the CRTC and allow Globalive to Operate, but this is not the only negative news for the stock.
The above chart displays the performance of Telus against the TSX index. As you can see, Telus’s stock price remained relatively in line with the market over the past 6 months up until the mid term trend was broker. This is obviously paralleled by the shares of Bell (BCE), and Rogers (RCI.B).
The above chart displays the stock price of Telus relative to Bell and Rogers. You can see the based on relative strength, Bell came in number 1 followed by Telus and then Rogers. Peculiar, that Bell and Telus have outperformed Rogers? Maybe not. Both Bell and Telus have unleashed Television services so they are the most comparable. Margins are slipping thought and will continue to do so.
From my point of view, Telus, Rogers, and Bell will all have their profit margins eaten up by the new market entrants over the coming year. The wireless industry is scarred; didn’t they begin cannibalizing their product over the last few years with the creation of Koodo, Fido, and Virgin to attempt to pull one over on MR. Consumer?
I wonder what Nadir Mohammed, CEO of Rogers, or George Alexander Cope, CEO of BCE, think about Darren Entwistle (CEO of Telus) giving up his salary for shares in Telus?
There is obviously more to this storey; for example, what amount of shares is Darren being allocated for his 2010 compensation? Are these shares provided at a discount to the current market value? Is he also receiving options? What are the tax implications? There are many more questions that must be address. Telus is no charity so there is almost guaranteed to be some bonus for Darren to take such a stance.
You be the judge and decide whether you think there is more too this than simple PR. As for me, I will be on the side lines neither buying or shorting any of these stocks.
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While its true that Telus stock has dropped at the advent of new, well funded competition (Globalive) it seems like an over reaction to me.
Historically, Telus has been a regional player with expensive debt. That changed when they (a) purchased Black’s Photos and have a national retail footprint, (b) Teamed with BCE to build the best wireless network in Canada and (c) restructured their debt at record low rates.
I see the incumbents as being stronger competitors at this point than Globalive and the small players as they have a network to sell. If Globalive wants to own the pre-paid market from Blockbuster stores let e’m have it. The customers you want are looking for smart phones and the LTE network Telus shares with BCE will provide a great experience.
I own shares of TU today and will be buying more on the dips.
good post, very informative,