BCE Reaches Final Buyout Agreement: What Next?

For BCE (BCE/NYSE) shareholders, the big fireworks yesterday was news the company had signed a final agreement with a group led by the Ontario Teachers' Pension Plan to complete the world's largest leveraged buyout after scrapping its quarterly dividend. The deal will close at the original price of C$42.75 per share, but the closing date has once again been pushed back. Now the deal is scheduled to reach completion no later than December 11.

With five months go to before completion, and no dividend to collect in the meantime, there's no need to hold onto the shares if they ever trade at C$42.75. (Or US$41.90 according to the Bloomberg currency calculator.)

Bloomberg reports BCE ending Friday in Canada at C$39.64 -- up more than 12% but still below the buyout price. BCE shares didn't trade in New York due to the Independence Day holiday in the US. It will be interesting to see where the stock trades in the coming days and weeks. A persistent discount to the purchase price will indicate the market has doubts about the deal. I don't usually put much stock (no pun intended) into what "the market" is supposedly "telling us" about future events.

Just be prepared, if you're a fellow traveler in BCE, for press reports about that should the discount continue going forward.

In the meantime, what to do now? Like I said, if the stock rises to the buyout price there's no need to hold it in my view. We're no longer getting paid to wait for the deal to close. Otherwise, mark the calendar for December 11 and play it by ear between then and now.

Comments

[Keith]

It is worth noting that BCE's board has cancelled the common dividend, so in effect the purchase price has already been discounted somewhere between $0.72 and $1.08, depending on when (if) the sale closes (yup, thats our cash being used to placate the buyer's banks).

So I guess the issue is whether the 3 bucks upside from here (7.5%, or about 6% risk-adjusted if you buy a 3% T-bill with what you can sell for now) is adequate return for the forward risk. Judging from the trade volume on July 4, I suspect a lot of people are pushing "sell".

[John]

Keith: Good point about doing away with the common dividend amounting to discounting the purchase price. I should have stated that, so thanks.