Bank of Canada concerned by debt-financed buyouts

Date: Wednesday, May 2, 2007
Author: Reuters

Reuters reports that Bank of Canada Governor David Dodge expressed concern on Tuesday about the rise in debt-financed buyouts of public companies and said central bankers need to keep an eye on the issue. Dodge appeared more sanguine about a spate of foreign-led acquisitions of Canadian companies, which have raised concerns about the "hollowing out" of corporate Canada.

The central bank chief noted the flow of corporate takeovers has been going in both directions across Canada's borders and is part of a global consolidation trend. But he singled out the rise in global liquidity, with funds sloshing around and fueling more takeover activity.

"We do seem to have an inexhaustible supply of debt finance to facilitate, whether it be hedge funds or other private pools of capital, to take companies out of the public domain, not just in Canada, it's a global phenomenon," Dodge told the House of Commons finance committee on Tuesday. "And that is an issue which, as a central banker, we have to be concerned about."

In the most recent example, BCE Inc. is in the sights of pension funds and private equity firms that are considering making a bid for the Canadian telecoms conglomerate.