The Globe and Mail - 13.11.2019

BÎ| REPORTONBUSINESS O THEGLOBEANDMAIL| WEDNESDAY,NOVEMBER13,2019

“This is an extremely exciting
time for digital infrastructure as
technology drives unpreceden-
ted changes across the industry
and creates attractive opportuni-
ties,” Steven Sonnenstein, ma-
naging director of Digital Colony,
said in an e-mail to The Globe
and Mail on Tuesday. “As data
traffic and storage needs contin-
ue to grow, Europe and the Amer-
icas are at an inflection point for
digital infrastructure. New tech-
nologies will only accelerate the
demand and costs to deploy.”
Mr. Sonnenstein would not
comment specifically on other
potential Canadian deals, but
said, “We remain bullish on the
Canadian digital infrastructure
market and will continue to seek
opportunities to invest in tele-
communications infrastructure
in the region in a strategic and ef-
fective manner.”
After inquiries from The
Globe, Digital Colony issued a
news release on the Beanfield ac-
quisition on Tuesday afternoon.

It did not disclose the financial

terms, but the earnings report

Colony Capital published last

week stated that Digital Colony

invested US$100-million in Bean-

field (or about $132-million Cana-

dian).

Cogeco Peer 1 (which Digital

Colony renamed Aptum Technol-

ogies in August) has 3,200 kilo-

metres of fibre in Toronto and

Montreal, plus 14 data centres in

the United States and Canada.

When Zayo acquired All-

stream (the former AT&T Cana-

da), it had about 20,000 km of

long-haul fibre connecting major

Canadian centres and 10 U.S. net-

work access points, plus about

9,000 km of fibre connecting in-

dividual customers in Toronto,

Montreal, Vancouver, Ottawa and

Calgary.

Beanfield hired Bank Street

Group, a Connecticut-based in-

vestment firm that advises com-

panies in the communications

and technology sector, and has

been looking for a buyer since at

least the beginning of 2019.

Dan Armstrong, who co-

founded Beanfield with Chris

Amendola, will remain with the

company as chief executive.

In its early days, Beanfield of-

fered fibre-based telecom servic-

es to businesses, but over the past

decade or so has expanded into

the residential market, offering

apartment dwellers in new condo

developments high-speed inter-

net service. Digital Colony said on

Tuesday that Beanfield will con-

tinue serving residential clients.

“It will continue to be business

as usual at Beanfield,” Mr. Son-

nenstein said. “We believe the

company has a great manage-

ment team in place.” He added

that Aptum and Beanfield will

operate independently.

Colony Capital is a giant in real

estate investing, and made Cana-

dian headlines in 2006, when it

jointly paid $3.3-billion for the

Fairmont Hotels & Resorts chain

through a consortium of inves-

tors that included the Saudi bil-

lionaire Prince al-Waleed bin Ta-

lal.

Thomas Barrack Jr., who was

chairman of U.S. President Do-

nald Trump’s inaugural commit-

tee, founded Colony in 1991. He is

currently the CEO, but Colony has

announced he plans to step down

from that role in 2020, although

he will remain executive chair-

man.

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That year, the Caisse booked a
$40-billion loss as it sustained
heavy losses in the value of its in-
vestments in stocks, real estate
and private equity after markets
crashed globally that fall.
Once in the door, Mr. Sabia
moved swiftly to restructure the
management team, book heavy
writedowns in the company’s real
estate business and reorient its in-
vestment strategy by focusing on
assets anchored in the real econo-
my. By the end of 2011, the Caisse’s
assets under management were
finally back to where they’d been
four years earlier, at $159-billion.
He has since delivered steady if
unexceptional returns, averaging
9.9 per cent annually in the past
decade and more than doubling
the Caisse’s asset base to $326.7-
billion as of June 30.
While the Caisse under Mr. Sa-
bia has become a far more global
investor – just 36 per cent of its as-
sets are now in Canada, from
more than 50 per cent – it has also
worked to live up to part of its
founding mandate to support the
Quebec economy.
The Caisse led efforts to build
and operate a new light rail sys-
tem in Montreal and has made
high-profile investments in the
province’s technology sector, in-
cluding leading a $200-million fi-
nancing of artificial intelligence
startup Element AI. It has also fi-
nanced expansion efforts of local
champions including CGI Group
and Laurentian Bank.
There are several unresolved
challenges for the pension fund,
including what to do about its siz-
able investment in beaten-down
engineering firm SNC-Lavalin
Group Inc. But progress on those
challenges is being made, Mr. Sa-
bia said. “I don’t see in any of

those files flashing red lights or

solid red lights.”

Quebec’s political leaders were

effusive in their praise for Mr. Sa-

bia and what he’s been able to ac-

complish at the Caisse. Mr. Le-

gault singled out his “exceptional

track record.” Economy Minister

Pierre Fitzgibbon said his rigorous

management pushed the pension

fund manager “to another level.”

The Caisse’s board has begun

the selection process for the next

CEO and has hired an internation-

al consultancy to help in the

search. The Caisse board recom-

mends a candidate to thegovern-

ment for approval.

Speculation about who would

take over from Mr. Sabia is already

well under way in Quebec’s corpo-

rate and political corridors of

power. External candidates

whose names have been linked to

the job include National Bank of

Canada CEO Louis Vachon and

Sophie Brochu, who is leaving her

job as CEO of energy firm Energir

at the end of the year. She would

be the first female CEO to lead the

Caisse were she to be selected.

“The government is always in a

hurry to name people. They un-

doubtedly have a candidate in

mind,” said Michel Nadeau of

Montreal’s Institute for Govern-

ance of Private and Public Organi-

zations, himself a former Caisse

senior executive.

Influential ingovernment and

business, Mr. Sabia, although not

an academic, is a respected leader

and an ideal candidate for a

school that seeks to make an im-

pact beyond academia. University

of Toronto president Meric Ger-

tler said one of the tasks entrusted

to Mr. Sabia will be to look into

whether the Munk School should

become a separate faculty unto it-

self.

“We were looking for some-

body who could act as a bridge be-

tween the great academic work

being done inside the university

and the school of global affairs

and public policy and the realm of

application,” Mr. Gertler said. “Mi-

chael brings tremendous credibil-

ity in both of those worlds.”

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“But I think Mr. Legault and
[Quebec Finance Minister] Éric
Girard decided to cut his man-
date short because they have a
candidate in mind and the candi-
date does not want to wait.”
As leader of then-opposition
Coalition Avenir Québec in 2016,
Mr. Legault was highly critical of
the sale of Quebec-based Rona
Inc. to U.S.-based Lowe’s Cos.
Inc., a transaction only made
possible by the Caisse’s decision
to tender its 17-per-cent stake in
the homegrown home-improve-
ment chain.
“What we want [for Quebec] is
an economy of owners, not an
economy of branches,” Mr. Le-
gault said at the time. “Do you
think the new shareholders, the
new managers, who are Ameri-
cans, are going to use Quebec
lawyers and accountants?”
As the Parti Québécois finance
critic in 2009, Mr. Legault op-
posed Mr. Sabia’s nomination,
accusing then-premier Jean
Charest of interfering in the se-
lection process the Caisse’s board
had set up to select a permanent
successor to Henri-Paul Rous-
seau, who had left under a cloud
in 2008. As Premier, however, Mr.
Legault appears to be preparing
to impose his own preference on
the Caisse board.
That might not be a problem if
the Premier’s preferred candi-
date is Sophie Brochu, consid-

ered a star in Quebec business

circles, who recently stepped

down as CEO of the province’s

main natural-gas distributor

Énergir Inc. Ms. Brochu was

groomed to take the helm at

Énergir’s predecessor company,

Gaz Métro Inc., by none other

than Robert Tessier, who now

chairs the Caisse’s board. Ms.

Brochu, who would be the first

woman to lead the Caisse, has

been rumoured to have an inside

track on the job.

Whoever succeeds Mr. Sabia,

she or he will be expected by Mr.

Legault to take a more visible

role in establishing the Caisse as

a strategic tool of economic de-

velopment in the province.

While the Caisse has been active

under Mr. Sabia in promoting

emerging technology companies

in Quebec, and went out on a

limb in backing a controversial

cement factory on the Gaspé

Peninsula favoured by politic-

ians, it has not been seen as the

champion of a homegrown busi-

ness class that it once was.

Mr. Legault, who was an exec-

utive at Air Transat during the

old-style Caisse’s heydays in the

early 1980s, is nostalgic for that

era. At the end of 2018, only 14

per cent of the Caisse’s $309-bil-

lion in assets under management

were invested in private-sector

businesses in Quebec.

The Caisse’s recent moves

with respect to SNC-Lavalin

Group Inc., in which the pension-

fund manager holds a 20-per-

cent stake, has also left its politi-

cal overlords questioning Mr. Sa-

bia’s strategy with regards to the

troubled engineering giant.

While Caisse insiders insist Mr.

Sabia has not explicitly endorsed

SNC-Lavalin’s decision to stop

bidding on lump-sum turnkey

infrastructure projects, the pen-

sion-fund manager has appeared

to back moves by SNC-Lavalin’s

management to reduce the com-

pany’s risk profile. That could

imply shrinking the company

substantially.

Still, despite the less-than-ide-

al circumstances of his depar-

ture, Mr. Sabia can leave the

Caisse with a sense of mission ac-

complished. He showed serious

guts in taking the job in 2009,

overcoming opposition led by

nationalist politicians and com-

mentators upset that an anglo-

phone who had overseen a shift

in BCE Inc.’s de facto head office

operations to Toronto from Mon-

treal had been chosen to take the

reins at an institution created in

the 1960s in part to enable fran-

cophone Quebeckers to wrest

control of their economy from

an English-speaking elite.

Mr. Sabia’s detractors were

gunning for him to fail. Not only

did he disappoint them, he took

the Caisse to new heights un-

imaginable in 2009. And he leav-

es the Caisse in arguably the best

shape it has ever been in. That

has to feel good.

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One of these U.S. court battles could see the Canadian am-

bassador to China called to testify about his former firm’s

work on bankruptcy cases.

Jay Alix, the wealthy founder of restructuring giant Alix-

Partners, has spent the past three years pursuing McKinsey

& Co., including Mr. Barton, in courts throughout the United

States.

He blames Mr. Barton for failing to take corrective action

on bankruptcy files while he was running the company, and

his court actions have personally embroiled the former

McKinsey head in continuing legal matters.

On Oct. 29, a bankruptcy judge in a Texas coal bankruptcy

case gave Mr. Alix the right to demand documents from

McKinsey and question its executives under oath.

David Jones, a Houston judge, had told the court in Janu-

ary he “going to need to hear” from Mr. Barton personally

rather than through a written deposition. “You get the truth

by swearing people in, and put them on the stand, and you

subject them to cross examination, and we figure what the

truth is,” the judge said.

Daniel Lemisch, a lawyer for Mr. Alix, said he believes it’s

likely the court will subpoena Mr. Barton. The case goes to

trial in February, 2020.

“Dominic Barton was the head of McKinsey at the time

that the alleged improprieties took place in their disclo-

sures,” Mr. Lemisch said.

McKinsey’s head office in New York did not immediately

respond to a request for comment Tuesday.

Mr. Barton would not be covered by diplomatic immuni-

ty in this in case because the investigation covers events in

the United States, before he became ambassador to China.

Mr. Alix has provided the courts and media, including

The Globe and Mail and New York Times, with transcripts of

conversations he had with Mr. Barton over a 14-month peri-

od beginning in September, 2014. He alleges that Mr. Barton

admitted to breaking bankruptcy laws, promised to get out

of the bankruptcy business and later reneged and offered to

steer consulting business to AlixPartners – a statement Mr.

Alix saw as an attempted bribe.

Mr. Barton told The New York Times in March that Mr.

Alix misconstrued what he actually meant.

“I was getting so fed up with his repetitive complaints

that I said something like, ‘Jay, there are plenty of opportu-

nities in the transformation service sector – apart from

bankruptcy companies – that AlixPartners should see,’ ” Mr.

Barton told the Times.

In January of this year, a federal judge in Virginia reo-

pened a bankruptcy case involving coal producer Alpha

Natural Resources after learning that McKinsey & Co. had

not disclosed, as required by law, that it was among the

company’s secured creditors through MIO Partners, a

US$25-billion investment fund for current and former

McKinsey partners. The court heard that the head of McKin-

sey’s bankruptcy practice was also a member of MIO’s

board.

The Wall Street Journal also reported Tuesday that prose-

cutors are examining McKinsey’s investment unit, MIO Part-

ners. MIO held undisclosed stakes in hedge funds in roughly

half of the bankruptcy cases it worked on between 2002

until the end of 2016.

McKinsey

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YOKOHAMANissan Motor Co.reported a 70-per-cent drop in

quarterly profit on Tuesday and cut its full-year forecast to

an 11-year low, hit by a strong yen and falling sales, and

highlighting the turmoil at the Japanese automaker after

the ouster of Carlos Ghosn.

The latest weak showing from Nissan, which also slashed

its interim dividend by 65 per cent after its worst second-

quarter performance in 15 years, illustrates the scale of the

work ahead for its new executive team, which is due to take

over on Dec. 1.

After the ouster of former chairman Mr. Ghosn almost a

year ago, Nissan has been battered by falling profit, un-

certainty over its future leadership and tensions with top

shareholder Renault SA – whose shares fell 2 per cent to

their lowest since April, 2013, after Nissan’s downbeat guid-

ance.

Nissan shares, down 19 per cent this year, closed up 1 per

cent at 714.5 yen (just less than $9) before the results an-

nouncement.

Operating profit at Japan’s second-biggest automaker by

sales came in at 30 billion yen in July-September compared

with 101.2 billion yen a year earlier.

That compared with a mean forecast of 47.48 billion yen

from nine analyst estimates compiled by Refinitiv. Nissan

announced an interim dividend of 10 yen a share, down

from 28.50 yen a year ago.

The company’s global vehicle sales fell 7.5 per cent to 1.27

million in the quarter. Sales in China, its biggest market, fell

2.5 per cent, while those in the United States fell 4.5 per cent.

“Our sales in China outpaced the market, but sales in

other key regions, including the U.S., Europe, and Japan

underperformed,” Stephen Ma, a corporate vice-president

who will become chief financial officer next month, told

reporters.

REUTERS

NISSANCUTSPROFITFORECAST

AFTER70-PER-CENTQUARTERLYPLUNGE