My Thoughts on Aquatera's Recent Acquisition

Aquatera recently acquired the private company, Watchhorn Rentals, through a subsidiary company (see press release).  As a shareholder of Aquatera, the City was able to cast a vote on the deal.  There was a majority of support on Council, so Mayor Given cast our vote in favour of the deal.  I was opposed and thought I'd share why:

First of all, I was not opposed because I thought it was a bad business deal.  The fundamentals of the acquired company are solid and the leadership of Aquatera did their due diligence in ensuring the acquisition was not going to expose ratepayers to much risk.  I think that going forward Watchorn Rentals will continue to succeed and be a valuable asset to Aquatera.  It will provide Aquatera with an additional revenue stream that will translate into higher dividends for shareholders.

So why the heck was I opposed then?

I was opposed to the deal on a matter of principle.  I believe there are only a few instances where governments should be competing openly in private markets.  While Aquatera is not a government entity, it is wholly-owned by municipalities and has a government-granted monopoly over several public utility services.  As such, my rationale applies to them as well.

Why?

I believe the government's role in the economy is to set the rules by which the market will function and then regulate and enforce those rules.  It is often unfair when governments enter the market as a player as they have powers, resources, and revenue streams that are not accessible to private companies.  In the case of Aquatera, the company has revenue from municipal ratepayers that could be used to finance expansion of their acquisition.  Watchorn's competitor's do not.

There are times when I believe it is justifiable for governments to enter the private market as opposed to just regulating it.  For example, sometimes the market is failing to provide a certain product or service or is unable to meet demand.  Sometimes there are overarching health and safety reasons.  However, in this case, the goal is to provide additional revenue to Aquatera.  The rationale is that this revenue stream will moderate utility rates while providing greater dividends to shareholders.

While this is a laudable goal on the surface, it does raise a major philosophical question: Should governments compete in the private market as a way to obtain additional revenue?

For example, the City could turn each of its departments into municipal corporations and we could have Parks out bidding for private mowing contracts or Transportation competing to paint lines in private parking lots.  This would provide the City with additional revenue, but at what cost?  An undermining of our robust business environment, in my view.

While this is an extreme example (which I doubt would ever receive ministerial approval), the underlying principles are the same. 

I will continue to be opposed to governments and/or municipally controlled corporations competing in the private sector unless there are justifiable reasons which do not include "additional revenue" alone.