text: Ontario's super-corporation has hallmarks of trial balloon | The Star
  Ontario's super-corporation has hallmarks of trial balloon
  Tues., March 9, 2010timer5 min. read
  I'd hate to be the poor soul pitching shares of the new "super-corporation" of Ontario Crown corporations that Queen's Park is musing about.
  What an unsightly congeries of mismatched assets the McGuinty government seems to have in mind – a new "shell" for the Liquor Control Board of Ontario (LCBO), the Ontario Lottery and Gaming Corp. (OLG), power utilities Ontario Power Generation and Hydro One – and perhaps more besides.
  In its Throne Speech Monday, the McGuinty government formally unveiled an Open Ontario agenda of creating a new economic base for the province over the next five years.
  There's lots of progressive, innovative stuff in Open Ontario. What it mostly comes down to is making Ontario a world-class centre of excellence for financial services, clean-water technology, alternative energy R&D and boosting foreign-student enrolment.
  Premier Dalton McGuinty is to be commended for these initiatives. With other industrial-renaissance efforts already launched by his government, they do show promise of laying a foundation of a 21st-century "knowledge economy" – one based on brains, not brawn.
  I'd part ways, though, on the "super-corporation" idea.
  It is tempting to think that certain of Ontario's Crown assets also represent global concentrations of expertise that could perhaps be exported once "unleashed."
  OLG, for instance, could run lottery, casino and slots operations in U.S. states and other jurisdictions at a lower cost than Louisiana, Belgium or Chile. The LCBO, the world's largest liquor vendor, could similarly pocket handsome fees applying its marketing, distribution and consumption-control methods in, say, Russia, to help curb its epidemic of alcoholism while providing more selection at lower prices to responsible drinkers.
  But it's a bit farcical to think of OLG and Hydro One as suppliers of expertise offshore when their home-based operations are so fraught with technological and other woes.
  The problem for investors with a super-corporation is that industrial conglomerates chronically underperform focused, single-suited enterprises.
  Even Warren Buffett's conglomerate, Berkshire Hathaway Inc., has been a poorer bet for investors than, say, Royal Bank of Canada or Caterpillar Inc., judging from their 10-year stock market performance. And Berkshire and the defunct Brascan Corp. have been better-constructed conglomerates than one that would generate nuclear power and distribute Pot `o' Gold lottery tickets at 7-Eleven. The up-selling synergies aren't readily apparent. ("Bottle of Jack Daniels with your 14 kWh?")
  What Ontario is flirting with is the kind of hybrid that investors rightly shy away from, a shell company roughly one-third owned by private investors. Which would amount to a joint venture between the public and private sectors.
  Joint ventures are unstable and seldom last more than a few years. The partners almost inevitably squabble over clashing priorities. That's certain when one partner is government, which answers to citizens, whose needs often do not jibe with the profit motive.
  If the idea is to realize some quick cash from a partial sell-off – hardly beyond the realm of imagination for a province coping with a record $24.7 billion deficit – this is a lousy time to be selling crown assets. It's a buyer's market for assets in this weak economy.
  Neither would investors flock to take a powerless minority stake in a conglomerate whose assets are regulated, slow-growth operations of 20th-century vintage.
  In contrast to Ottawa, which profitably disposed of Petro-Canada, Air Canada and Canadian National Railway Co., Ontario is traditionally an inept seller of Crown assets.
  The fiascos range from the 1999 giveaway of Highway 407 (the ETR) to the mid-1980s sale of a one-quarter stake in Suncor Energy Inc. during a nadir in world oil prices. Today that $600 million stake, effectively written off a quarter century ago, would be worth about $12.5 billion – or half the current deficit.
  This is a case for maintaining the status quo, until fair prices can be realized on Crown jewels like the LCBO and OLG. OPG and Hydro One have proved themselves financially viable enterprises. At which point they'd be sold separately.
  The "super-corporation" has the hallmarks of a trial balloon, like the briefly mooted umpteenth change to the lyrics of "O Canada." A political ploy by the Liberals. Ahead of next year's election, McGuinty will likely discover Bay Street has zero interest in this curious hybrid. He'll then be able to campaign for a third time against the privatization of Crown assets favoured by the Tories.