Mr. Postman, Look & See, Is There a Letter for Thee?

Anderson Agbugba, Commentary, Crown Corporations, Ian Madsen

Changes in trends occasioned by digitization has had some adverse financial effects on Canada Post Corporation (CPC). Particularly, there is a shift in demand for traditional mail leading to a decline in mail volumes. Parcel volumes, however, are increasing owing to fast growing e-commerce. Canada Post is struggling to keep up with these changes. This failure will cost Canada Post more than $1 billion by 2020.

Additionally, pension challenges, high cost of production labour and the shrinking business value of Canada Post are a few other problems bedeviling the federally-owned Crown corporation.

What is the way forward?

The Frontier Centre for Public Policy recently released a paper in its public choice alternatives – series on the valuation of Canada Post. According to the valuation, Canada Post could be worth as much as $30 billion if divested; or it could be worthless if unable to fully realize its illiquid assets into cash. Its value may be worth as much as $24 – $27 billion if CPC would be organizationally optimized and reoriented to cash generation. Canada Post has had quite an impressive turnaround and is now ripe for divestiture. It no longer serves an essential service role as virtually all important communications are now conducted electronically.

A major problem in selling off the company via an initial public offering on a stock exchange is the significant unfunded pension and other benefit liability. While there exists a huge chunk of debt to swallow, the federal government should consider taking it on to ensure that it can fully maximize the proceeds of divestiture of the company. Also, as with any other enterprise, there is always the risk of serious operating and financial losses. These risks are best taken by private investors who are more motivated to minimize or eliminate them, than Canadian taxpayers.

Proceeds from a possible sale of CPC can be used against any liability associated with the company that remains with Ottawa. Whatever is left can be used to offset the numerous federal budget deficits that are forecasted to last several years into the future. The decision to keep or sell off all, most or part of CPC, lies with the citizens and Canadian taxpayers via their elected representatives in the House of Commons.

Related Valuation: Public Choice Alternative: Canada Post Corporation by Ian Madsen