Antitrust angle to BCE takeover?

Is there an Antitrust angle brewing? BCE Takeover part 7

As predicted, BCE (BCE:TSX) shares traded down yesterday on the reports that the Ontario Teachers Pension Plan Board was reconsidering its interest in competing with a CPP Investment Board-led buyout group. According to this mornings’ paper, there is no change to that storyline.

What’s fascinating about the undercurrent of this is that BCE management is, at least according to the Globe & Mail, involved in the actual approval of any funds participating in CPPIB’s group. While CDP, PSP and KKR have been given the green light, it appears that BCE has the right to pick and choose who can join in thereafter.

So, if you were BCIM, OMERS or Alberta Investment Management, and you eventually wanted to be with the winner for your small slice, whomever the winner might be, isn’t it hard for you to allow your pension fund’s name to be used in the same sentence as Teachers, if you thought BCE management had determined to do all they can to stop Teachers from winning the auction.

Of course, you’d back off the ledge. Who wants to be seen to be supporting a side if you thought that support might preclude you from being part of a winning syndicate, should Teachers not prevail?

This is dangerous territory, and not only for BCE shareholders who might be denied a robust auction.

It is dangerous territory in light of the fact that BCE is listed on the NYSE, and that means the U.S. Department of Justice has jurisdiction should they ever decide to add this transaction to the list of deals they are curently reviewing from an Antitrust standpoint.

In case you hadn’t heard, the DOJ has made at least five informal inquiries of private equity firms. The antitrust division is reportedly interested in whether or not private equity firms are colluding to keep auction prices down. And KKR, a partner with CPPIB on the BCE deal, is one of those that have allegedly received a DOJ inquiry.

So, if you are at BCE, either on the Board or in the CEO’s chair, perhaps it might be worthwhile to ask your legal counsel for some advice on this topic.

Here’s a sample pair of questions, free of charge:

“Dear wise counsel. I understand that there may be an investigation underway right now involving collusion among private equity firms. If we at BCE are involved in picking which investors can participate in due diligence, and even the auction itself, could the U.S. Department of Justice take the view that this was anticompetitive behaviour? Or, put another way, if we are involved at all in the process that determines which firms even get to put in a bid, and this may be seen to reduce the chances of an auction process, could that draw the attention of the DOJ?”

If you get an answer from your lawyer that is something close to “don’t worry, the role you are personally playing with private equity firms (or through investment banking intermediaries) is in the spirit of fulfilling your fiduciary responsibilities, and cannot be seen to be encouraging collusion among potential bidders”, ask them to give you a written Legal Opinion.

There will be silence for a bit, as your wise counsel considers the request. And the silence will end, and there will be a wonderful and sincere explanation as to why this is a difficult thing to put in writing. In the end, I doubt that your Legal Opinion will come.

Which begs the question, if BCE is up to their armpits in the mechanics of bidding groups, perhaps they should get comfort that the DOJ won’t care?

The proof is in the pudding. On Friday, when the story ran that there would be an auction, BCE shares climbed. The day after that, when the story ran that Teachers was reconsidering their bid due to “process concerns”, BCE shares fell on the subsequent trading day. Case closed.

Remember the 1994 Tom Clancy movie Clear and Present Danger? When Jack Ryan’s Deputy CIA Director nemesis reaches into his personal wall safe and pulls out his “Presidential Letter”, directing him to conduct foreign missions (even though the legality of the missions was hazy)? If I were a BCE manager or director, I’d sure want to have one of those in my wall safe, just in case the DOJ comes calling.

MRM