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Not long ago—early in this millennium, in fact—Jim Leech was the Invisible Man. That is hard to imagine now, when not a single person on Bay Street does not know the name of the man who has just landed one of the top jobs in the country, the man who appears to have pulled off one of the largest leveraged buyouts in world history.

But it's true. The last time Report on Business magazine devoted an article to the erstwhile Invisible Man, it was a 200-word item published in October, 2001. The headline: "Whatever Happened to…Jim Leech?"
Jim Leech. Know him? Nope, never heard of him.

He had, it seemed, disappeared. Once a high-profile takeover artist, Leech spent the better part of the 1990s working for obscure technology companies. Each one ultimately got sold, merged, failed—or all three. Leech was unemployed. He considered taking a sabbatical to go hiking in Australia.

It was not to be. A headhunter's call took Leech to the Ontario Teachers' Pension Plan, which, thanks to Leech's efforts, soon became a player in the rough-and-tumble arena of private equity, taking control of two iconic entities—Yellow Pages and the Toronto Maple Leafs—and landing sizable stakes in CTV and The Globe and Mail.

But none of those deals even came close, in size or complexity, to what Leech has taken on with the $35-billion takeover of BCE Inc. The saga of the deal's closing—still going, many months and one trip to the Supreme Court later—could fill a good-sized book. But now that it looks as though the closing will happen, giving Teachers 52% ownership of the country's largest telecommunications company, the story has turned into a question: How on earth is Jim Leech going to make his bet pay off?

Even if Teachers hadn't bought BCE, Leech would have his hands full with that new job, replacing the revered Claude Lamoureux, the chief executive officer who took the fund's assets from $19 billion to $109 billion and who made it a model for other Canadian pension plans. "Someone said it's like taking over a hockey team that won 10 Stanley Cups," Leech confessed last year.

Arguably, then, the 61-year-old Leech is set up for failure. If Teachers continues to prosper and beat the market, it'll simply be enjoying Lamoureux's legacy. But if the BCE investment goes sour and the fund underperforms, it'll be Leech, as the public face of that takeover, who wears it. (Oh, yes: The fund is also a demographic time bomb whose liabilities are growing so fast that, despite its very good investment performance, it has a $12.7-billion shortfall.) It looks like a no-win situation that would intimidate anyone—except the unflappable Jim Leech.

Child prodigies have a cherished place in investing lore. Warren Buffett, famously, used the money from a paper route and other teenage jobs to fund his grubstake in the stock market.

Jim Leech is not one of those guys. The military was "the family business," as he calls it, and for an army brat who spent his high school years chumming with other officers' kids at bases near Ottawa and Edmonton, the logical thing to do next was attend military college, which he did, studying math and physics.

After graduating from Royal Military College in 1968, Leech was dispatched to bases in West Germany. As a communications officer, his job was to ensure that no matter what the location, troops and HQ could stay in constant contact. He was plunged into a French unit to force him to become bilingual.

Leech moved up quickly and was a captain by the age of 22. That would have been enough to satisfy nearly any young soldier, but not Leech. His life changed when he sat down with one of the Canadian Forces' career managers—"sometimes referred to as 'career manglers,' " he says. "I remember him saying, 'Your career's really good…you're fast-tracking, but you've got to remember that the youngest general in the Canadian Forces is 46 years old. So you've got 24 years to wait, young man,'" Leech recalls. "And I said to myself, 'I don't think I can wait that long.'"
Captain Leech handed in his resignation the following week.

What to do next? "I knew nothing about business," says Leech. But his father, Brigadier-General George Leech, had become the registrar at Queen's University. So the son followed, enrolling in the MBA program for the sake of studying "something useful." While there, he interviewed with Bell Canada but, like the military, it seemed a mammoth organization, bureaucratic and slow. Not a good place for a young man impatient to get to the top.

Leech found a better fit with a Montreal financial concern, Commerce Capital: The holding company had a staff of five. Leech worked on acquisitions, financing and whatever else needed to be done. Commerce also gave him his first taste of working for a troubled company. In the mid-1970s, one of its subsidiaries, an Alberta trust company, got in too deep with real-estate developers in Vancouver. Leech was parachuted in to save the company.

While in the trust business, Leech met George Mann, a Toronto entrepreneur with a penchant for grandiose schemes. He brought Leech on board at his company, Unicorp, to execute deals and to be a sounding board. "I was the guy he'd come back to and say, 'I've got these 15 ideas,'" says Leech, "and I'd have to sort through them and say, 'crazy,' 'crazy,' 'crazy,' 'well, maybe,'—'whoa, there's a good one.'" Leech once compared his role to that of the "wingman" who watches from the bar while a friend tries to pick up women.

It was with Mann that Leech proved his takeover acumen and started to become known on Bay Street. Some of Mann's ideas really were brilliant. One, in the late '70s, was to sift through the wreckage of U.S. real-estate trusts to find undervalued property. It was classic shoe-leather investment research. "We'd go visit all the buildings. I can remember looking at the tenant directory and writing down all the tenants in the building. …We'd find out how long their lease was," says Leech. "We were into the creeping takeovers, filing 13Ds [regulatory filings for activist investors], all that kind of stuff."

Though the Canadian scene was more sedate than the American, Mann proved to be among the more aggressive dealmakers in the greed-is-good '80s. He was helped by the instincts and calm under fire that seemed to come to his protégé naturally. "[Leech] was very bright at understanding takeover situations. That sort of stuff didn't faze him at all," remembers Phil Lind, the vice-chairman of Rogers Communications, who sat on the board of Union Gas, one of Mann's companies. Unicorp made large investments in, or took runs at, Purolator Courier, Quebec grocer Steinberg and Dunkin' Donuts.

But the deal that elevated Leech to local fame was a 1985 play for Union Enterprises, a holding company in the energy sector. It was, with perhaps one or two exceptions, "really the first all-out Canadian hostile takeover," Leech says. It pitted Mann and Leech, the Bay Street outsiders, against the blue-blooded Toronto establishment, in particular Darcy McKeough, the former Conservative treasurer of Ontario, who was Union's chairman and CEO.

Mann and Leech won, but like the other debt-fuelled corporate raiders of the '80s, they were about to get their comeuppance. Unicorp's American unit bought a small New York savings bank and ran full speed into the savings-and-loans crisis. Meanwhile, Unicorp's ownership structure—Mann had control but the Edper Brascan group had a big stake—proved untenable. It was time to liquidate Unicorp's assets.

Leech was out of a job. At 45, with three teenaged children, he stayed home to think about his life. Did he want to teach? Go into politics? It was early 1992, a grim time economically. He picked up Nuala Beck's tech-touting bestseller, Shifting Gears: Thriving in the New Economy. Leech knew nothing about technology—he didn't even own a computer. But then, he hadn't known a thing about business either when he left the military.

Leech scoured the TSX for little tech companies. He wanted something small, so that he could have a big role—and landed, almost by accident, at a microcap called Dysis Corp.

Thus began Leech's lost years in the topsy-turvy world of tech (see box, next page). Yet none of the blow-ups seemed to stick to Leech. This Teflon quality is probably a product of his management style. When a project fails on a CEO who has controlled every aspect of it, there's no one else to blame. Leech, though, is anything but a control freak.

Leech made apparent his delegating ways early in his time at Teachers. After he became head of what's now called Teachers' Private Capital in 2001, his first senior hire was Mark Wiseman, a young corporate lawyer. (Later, as head of the CPP Investment Board's private investments department, Wiseman would go up against Leech in the fight for BCE.) In early 2002, the two men were on a flight from Toronto to New York. Their main mission was to begin a campaign to persuade Wall Street that, yes, a pension fund from a frozen, second-tier financial centre was serious about buying private companies. "We had a lot of trouble getting that point across," Leech recalled last year. "They sort of thought it was cute. Nice Canadians. Now let's go talk to KKR [Kohlberg Kravis Roberts & Co.]."

Wiseman knew a little about Leech's background and had assumed he'd take a militaristic approach to business. On the flight, he turned to his boss and said: "I expected this to be very regimented. And, quite frankly, I've been here for three months and I haven't seen you." Leech, Wiseman recalls, actually answered with a military analogy. A general must avoid getting involved in the minutiae; his job is to set strategy and trust people to execute it. Wiseman remembers him saying: "Unless there's a problem, I'm going to assume you're out there doing it."
Leech's easygoing personality and hands-off attitude undeniably help him in his work. For Teachers may be respected, but like any institution with money and power, it is not universally loved or trusted. An aggressive front man would not help matters.

Leech's style came to the fore in the 2003 restructuring of Maple Leaf Sports & Entertainment (MLSE). Before BCE, this was Leech's signature accomplishment, not because of its size (Teachers raised its stake from 49% to 58%) but because of the iconic status of the hockey team and because the deal involved unseating Steve Stavro, who had taken control of the club after Harold Ballard's death.

By the time Leech got the MLSE file, Teachers was already in deep—not just as the largest shareholder but as a bondholder as well. But the situation was unstable: Stavro's Knob Hill Farms grocery chain had collapsed, while, at the same time, it was becoming clear that the National Hockey League and the players' union were heading toward a collision. "If there was $50 million needed to get you through two years of a lockout or something like that, Steve wasn't going to be writing a cheque," Leech remembers. "We were the big guy, and everybody was going to turn to us."

Thus began a campaign of "shuttle diplomacy" between Stavro and the Leafs' other major owners, TD Capital and entrepreneur Larry Tanenbaum. Leech's modus operandi was to get in a lot of face time with Stavro—"so that he didn't see us as a threat. It was his baby, so he didn't want to let it go. We had to convince him that it was going to go into better hands and stronger hands and have a future." It took months, but by early 2003, Leech had gently pushed out Stavro, and Bell Globemedia (now CTVglobemedia) came in as a new minority shareholder. "That is a real talent," says long-time friend Brent Belzberg, a veteran private-equity player, of Leech's MLSE stickhandling.

But that talent may not be as important as another—the one for finding more talent. In the private equity world, where people make many millions annually, Leech knew a pension fund couldn't compete on money; he had to hire the bright and the young. Of the 60 private-equity specialists at Teachers, only a handful were in business at the time of the 1987 market crash.

Part of the appeal for those who have signed on is that Leech is not a typical MBA stiff who cares only about dollars. His office culture involves bowling or curling nights, and he's been known to order everyone to quit work early to shoot nine holes of golf. Once, for a laugh, Leech took his crew to cooking school, and each year they commit a day to volunteer work. Asked what drives him, Leech doesn't hesitate: "Having fun. We say that to all the young, new employees—'If you're not having fun, go find something else to do.'" Chuck Winograd, the head of RBC Capital Markets, says Leech's sense of balance, his reasonableness, is probably his greatest strength.

While MLSE re-established Leech's profile, the deal that will make his legacy, or tarnish it, is BCE.

One private-equity player says it's "astonishing" that Teachers still wants to close the deal at the original price when many other deals made in the Great Buyout Bubble of 2007 have either been undone or renegotiated. Is it, he wonders, that Leech places such a high value on keeping his word that he'll take a bigger risk for a lesser return? "I might do that for a $1-billion deal," says the player, who spoke on condition of anonymity. "But not on $35 billion."

Leech dismisses the argument. "Listen, all the time you've got to keep pinching yourself and saying, 'This isn't just for the pride of doing the deal at any cost.'" At times this spring, it seemed like the fates were conspiring to kill the takeover. First, Leech got hectored publicly by Konrad von Finckenstein, the CRTC chairman, for employing a widely used loophole in Ontario pension law to get the deal through. Then, Bear Stearns collapsed and the financial markets were seized by panic. Then the banks began to make noises that they wouldn't keep their funding promises. Then the Quebec Court of Appeal sided with BCE's bondholders in their suit to stop the deal. Leech appeared to have several opportunities to walk away. "We took the opportunity to look ourselves in the mirror and say, 'Do we want to go ahead with this or not?' and determined that we did," says Leech, who still thinks that the purchase will be "very, very profitable."

Even if it's not, however, it's not going to sink the pension fund. Teachers' total equity commitment to BCE is just under $4 billion, or 3.7% of the fund's assets. What failure would do, apart from denting Leech's reputation, is worsen his biggest problem at Teachers. Demographically, the fund is a mess, which is why it has a $12.7-billion shortfall between assets and liabilities. When Lamoureux joined the fund as its first CEO in 1990, there were four working teachers for every one drawing a pension. The ratio is now 1.6 to 1, and it's going to get worse.

The fund is on such a tightrope that a mere 10% decline in assets—something that happens to equity mutual funds all the time—would force working teachers and Ontario taxpayers to cough up hundreds of millions more in annual contributions to bail it out. Strikingly, with BCE, Teachers is making its biggest single equity bet at a time when it is otherwise shunning equities. It has cut its stock portfolio to 46% of total assets, down from around 70% in the mid-1990s. Instead, it has been pouring money into more stable kinds of assets, such as real-return bonds and infrastructure. (The fund recently sealed a deal to buy part of Chile's second-largest electrical transmission company.)

As to how it all started, Leech wishes to set the record straight. He is not the bully here, he claims, whatever the public portrayal of his role might be. On March 29, 2007, The Globe broke the news of KKR's interest in BCE, and also mentioned Teachers as a potential buyer. The same day, Teachers, as BCE's largest shareholder, began receiving calls from "every private equity firm in the world," Leech says. Because of those discussions, Teachers' lawyers determined the fund had crossed the line from passive to active investing, and would have to say so in a 13D filing with U.S. regulators.

When BCE's CEO, Michael Sabia, and chairman, Richard Currie, made an eleventh-hour plea to Leech and Lamoureux not to make the filing, Leech invoked his experience as a corporate raider under George Mann. "I remember saying to Michael and Dick, that back in my Unicorp days…I'd been on the stand defending alleged 13D violations, where lawyers are saying to you, 'When exactly did you change from being passive to being active? What about this conversation you had with somebody at noon on a certain date?' It's not fun. You don't fool around with federal statutes." The notion that he, Jim Leech, was trying to create an auction for BCE because Teachers was ticked off about the lifeless stock price is wrong, he says; he was just following the law.

Perception sometimes becomes reality, however, and like it or not, Leech will always be viewed as the guy who forced BCE into play, and he will take the blame if the investment goes sour (assuming, in the first place, that the deal does close). "I think they just paid too much," says Wiseman, who left Teachers for CPP in 2005. Moments later, he backtracks. "That's not fair. They paid more than we were willing to pay." About $2.3 billion more, it turned out.

Brian Gibson, who led the public-equities group that in-creased Teachers' initial stake in BCE to 5% in 2005-'06, says: "It was a high price to pay when you think of the work that needs to be done to deliver the value. But at least the value is there." (Gibson left Teachers at the start of this year.)

As with many things in life, it was a matter of timing. No sooner had BCE declared the Teachers' group the winner—Leech was on his way to spend a Canada Day weekend at his Muskoka cottage when he got the call—than the world's financial system began to retch at the hundreds of billions of dollars in new junk debt it would have to absorb to pay for a wave of monster leveraged buyouts. The credit crisis was under way. Interest rates spiked on high-yield corporate bonds—the kind that BCE will ultimately have to issue, in tens of billions, to repay the bank debt that will fund the takeover—and equity valuations fell.

Within months, the BCE deal was being held up as a peak-of-the-bubble kind of deal, not quite as stupid as buying shares in Pets.com at the peak of the tech boom, but not particularly smart, either. Including debt, the $51-billion price was between 7 1/2 and eight times a 2008 estimate of BCE's earnings before interest, taxes, depreciation and amortization (EBITDA). But BCE's rival Telus traded for barely more than five times EBITDA this year, despite its better growth and stronger wireless division.
The stock market's deflation turns private-equity math on its head. For a while, it was simple: Use cheap debt to buy a company for, say, a multiple of six times EBITDA or cash flow, spend a few years sacking people and cutting the budget for postage stamps, then sell or take it public at a multiple of eight times. But once you reverse it—buy for eight times, sell for six—it means you have to toil mightily to improve the cash flow enough to make a half-decent return, or any return at all. "That's a huge challenge for all these private-equity deals," Brian Gibson says.

True enough: BCE is going to be a lot of work, and potentially a large distraction, for Leech's team. Never before has the pension fund had to manage a business of anywhere near this size. While some private deals involve months of due diligence, Teachers—and all the other bidders in last year's auction—was forced to put a price on BCE after only a few weeks in the data room, as BCE's board hurried the auction while the debt markets were still good.

Teachers did, of course, have the sort of knowledge of a company that comes from being a shareholder. The buyers were, in essence, taking a leap of faith that they could perform the kind of radical surgery that the Sabia regime couldn't, or wouldn't, do in five years. (Alternatively, in the Sabia view, a recovering BCE had reached an "inflection point" in value that the buyers recognized.) The "100-day plan" for the fix is secret, but a few of the details have come out. Wireless wunderkind George Cope was promoted to CEO in early July, after Leech insisted on it to the board—"Our biggest concern was this thing had been rudderless for some time"—and the new boss immediately chopped five of 17 direct reports. "That tells you there's five people who weren't doing anything," says Leech. The next phase came on July 28, with the axing of 2,500 management jobs, about 6% of the Bell Canada work force. More cuts are expected. A 10% reduction in overall head count—not an unreasonable guess for a debt-heavy LBO target—would imply about 4,400 layoffs.

Another target is capital spending, which consumes more than $3 billion a year, yet has been of little obvious help in improving the bottom line. Cope, who's a quantum leap forward in telecom expertise compared with Sabia, will make the company more "focused," Leech says. Cope will also end some of the sillier practices of the public-company era. No more deep discounts on cellphones or promotions in the last two weeks of the quarter just to fluff short-term sales and hit analysts' subscriber targets. When Leech is trying to emphasize something, he will punctuate it by thumping the table with the outside of his hand: "You take the company out of the spotlight of living quarter (thump) by quarter (thump) by quarter (thump)."

But will cost measures be enough? Revenues are the other part of the equation, and at BCE they've been growing at the speed of a nonagenarian with a walker.
In 2005, $17.55 billion.
In 2006, $17.66 billion.
In 2007, $17.87 billion.
Bell Canada's basic phone business is in inextricable decline because of new technology that allows cable companies to offer the service at a competitive price, but without Bell's heavy overheads. Bell has lost more than one million land-line customers in three years, mostly to Rogers Communications Inc. and Quebecor Inc.'s Vidéotron unit, though the losses may be slowing. Wireless and Internet revenues are growing, but barely enough to make up for the land-line decline.

Not much can be done about the land lines. Bell's monopoly is slowly eroding. But what about wireless? Bell has been outhustled, outmarketed and outsold. It does not punch anywhere near its weight. In 2006 and '07, the three main providers added about three million new subscribers. But Rogers got 39% of them, and Telus 35%, leaving Bell with just 26%. To make it worse, Rogers has a monopoly on Apple's iPhone because it's the only one of the big three cellphone players whose network is compatible with the device.

BCE's poor market-share position limits its use of a favourite Cope tool: price increases. So does the spectre of new competitors. Canadians pay about 11 cents a minute, on average, to use their cellphones, almost double the six cents a minute that Americans pay, according to Genuity Capital Markets research. That's one reason cellphones reach only 61% of the population, a lower penetration rate than in other major markets throughout the Western world.

At the time of the BCE auction, everyone, Leech included, knew there was a risk the federal government would do something about this discrepancy—something that would eat into Bell's lush wireless profit margins. Though Teachers accounted for this contingency in making its bid, Ottawa's policy has turned out to be more hostile and costly to incumbents than the industry expected. Spectrum—the prime real estate of the airwaves—was set aside by federal decree exclusively for new competitors. By the time Industry Canada's spectrum auction wound down in July, it was obvious that at least two new wireless carriers will probably emerge in every region save Quebec. In that province, Bell's home market, Vidéotron spent heavily on spectrum, and it has already been a major nuisance to Bell on land lines. In short: "Inevitably, prices are coming down," says one private-equity investor with detailed knowledge of the North American telecom industry.

Still, even if it overpaid for BCE, Teachers does have a few things going for it. One, ironically, is the drawn-out closing process. Assuming the deal closes around the new deadline of Dec. 11, Leech and Cope will have had 17 months to refine the business plan; that's also 17 months for cash flow to build up inside the company or for debt to be repaid. Leech could hardly have picked better partners. Providence Equity Partners LLC, the other major shareholder, specializes in media and telecom investments; had Teachers not been paired with Providence, Leech says, it's doubtful he would have wanted to press on with the deal. Madison Dearborn Partners LLC, meanwhile, knows the Canadian wireless industry, having backed Clearnet Communications Inc., where Cope made his name. This background may help explain why the group was willing to pay so much more than the CPP consortium.

"Maybe they had the ability to do that because Madison Dearborn is close to George. Maybe they had that conviction," says the private-equity investor. It might also be that the wireless industry is on the verge of a new boom. As wireless Internet surfing takes off, the growth in revenue per subscriber could make all these other problems moot. Even the iPhone isn't out of reach for Bell, if it's willing to spend some money (probably in co-operation with Telus) updating its network. "People thought Teachers paid too much for Maple Leaf Sports when they bought it," says Leech's friend Brent Belzberg. "BCE has got problems, there's no doubt about it, but it's a great asset.

"Jim may laugh at everybody 20 years from now."