Shortly after Friday’s post I decided to take a full position in BCE. I am fully aware that there is some risk in this play. However, I believe that the risk reward favours investing in BCE. The worst case scenario as an investor is that the buyout does not occur and I’m left holding a position in Canada ’s largest telecommunications company.
Although the possibility exists that the deal will not go through here are the reasons I believe it will:
1. The Teachers Pension plan is not dumb and they are aware that there has always been regulatory risk and rumours regarding the opening of telecommunications markets in Canada.
2. The bond holders trying to block the deal are Bell bondholders not BCE bondholders.
3. Credit markets are in disarray due to the sub prime mess, which could cause problems raising the necessary capital. However, if financing cannot be obtained they have other options such as: increasing the amount of capital invested and refinancing later.
4. The consortium could simply walk away from the deal. However, I think that is highly unlikely as there is a $1 billion dollar break free in addition to the teachers losing hundreds of million of dollars on their existing shares of BCE.
If you want more information on the deal here is a link to the privatization page at BCE.
I would just like to reiterate that I am making an educated gamble and that buying BCE at this juncture is NOT RISK FREE so please do your own research and make your own decisions.