BCE Deal is Done!

Well the BCE deal is finally going to be done and is expected to close before the 11th of December! I purchased BCE in December 2007 and although I didn’t expect the volatility, or the favourable ruling for the bondholders it is nice to see that my rational for buying was correct. To see my original thesis behind purchasing BCE please click here.

Whether BCE is actually worth $42.75 is a whole other story though....

BCE – A Sigh of Relief

You could almost hear a communal sign of relief today as the Supreme Court of Canada dismissed bondholder objections to the proposed $35-billion deal to privatize BCE. Despite this ruling there is obviously still a lot of doubt on the street as the 30 million shares traded today resulted in only a 5.7% increase in the share price. Personally, I will continue to hold my shares and am speculating that this ruling will solidify the deal in the $41 to $42.75 range. Here is what some of the professional are predicting:

-Troy Crandall at MacDougall, MacDougall & MacTier – $42.75 (80% likelihood)
-Joseph MacKay at Desjardins Securities Inc. – $39.25
-David Lambert at Canaccord Adams – $42.75

Purchased BCE

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.

BCE – Still a Play?

As I’m sure everyone knows a consortium led by Teachers' Private Capital, Providence Equity Partners and Madison Dearborn Partners have made arrangements to acquire all of outstanding common and preferred shares of BCE. The deal is expected to close in the first quarter of 2008 and shareholders have overwhelmingly approved the $42.75 offered for each common share. Despite this fact (at the time writing) BCE is only trading at $39.40. This represents a discount of $3.35 or approximately 7.8%. Additionally, two dividends will be paid before the buyout for a total which will add another $0.73 per share. Combine the capital appreciation and the dividend income and that represents an upside of $4.08 or 10.3% between now and the second quarter of 2008. In my opinion a potential six month return of 10.3% is certainly very attractive in this environment. There is only one obvious risk to this scenario, the takeover does not happen. In my opinion the risk of this is minimal (but does exist) and I’ll probably be making a purchase of BCE in the near future.