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Privatize Purolator Courier

By Kevin Gaudet
web posted July 26, 2010

The President of Canada Post, Moyra Green, is leaving to help new British Prime Minister David Cameron privatize the UK version of Canada Post – Royal Mail. On the way out the door Ms. Green said that Canada Post and its services ought to be reviewed every five years. Now would be a good time for Prime Minister Harper to follow Ms. Green's advice. Canada Post's next President should start the review by looking at the case for privatizing Canada Post's Purolator Courier.

Since November of 2008 the Harper government has been musing about a corporate asset review. Finance Minister Flaherty even joked about selling the CN Tower. Just last month he told a Wall Street audience that the government is "looking at assets that are owned by the people of Canada that may no longer have a public purpose." Results have been slow, however. So far, only one crown corporation is on the sales block – Atomic Energy of Canada Limited. It's time for more crowns to be put in the sales display case.

In terms of assets that may no longer serve a public purpose, Purolator Courier, which is 91 per cent owned by the crown corporation – Canada Post Corporation, should be amongst those top of list. Indeed, it's hard to understand how taxpayers owning a courier company was ever in the public interest. The public and businesses are very well-served by a variety of local and global courier companies.

When you think of core government services; military, police, fire, water, roads, and a few others come to mind. State run courier services don't ever come close to making the list.

Given the slow but continual rebound in the markets, which are now climbing back close to pre-2008 global recession levels, it is likely that many suitors would see a great opportunity in Purolator Courier's $1.4 billion in annual revenues and nine straight years of profitability.

In 1992, Purolator was purchased by Canada Post (read: taxpayers) for $55 million. Given its performance, analysts believe it could sell for many, many times more – even $1 billion.

A buyer importantly might think it can improve the performance of the company. For 2009 Purolator's net income was only $53 million on the $1.4 billion in revenue. Earnings compared to revenue is a key factor in evaluating firms. In this category, Purolator importantly lags its competition. Purolator has an earnings before taxes (EBT) ratio of 3.7 per cent while FedEx is better at 5.5 per cent and UPS blows them both out of the water at 7.5 per cent. This should make Purolator a good turnaround target.

A study by the World Bank in 1997 examined over 60 privatized companies in 18 countries. It found that, on average, privatized companies increased profitability by 45 per cent, efficiency by 11 per cent and output by 27 per cent — an overwhelming endorsement of privatization.

A University of British Columbia study of the performance of major Canadian Crown corporations that were privatized between 1985 and 1996 including Air Canada, Canadian National Railway (CN), Petro-Canada, Fishery Products, Potash Corporation, Alberta Government Telephones and Nova Scotia Power, showed that privatized firms increased profitability, efficiency and reduced debt ratios.

Of course, any process to sell Purolator or other crown assets must be transparent and represent good value for Canadians. The bottom line is that it's time for the government to improve its own bottom line and put some assets in the window ... anybody want to buy a courier company? ESR

Kevin Gaudet is the federal director of the Canadian Taxpayers Federation. © 2010, Kevin Gaudet






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