BCE takeover part 6

If you read the reports carefully, it appears that the takeover dance at BCE (BCE:TSX) has gone from looking like a NCAA tournament bracket to that of an Irish dance troupe (Burning the Floor?).

If you are a BCE shareholder hoping for a bidding war, the most troubling reference in the Globe piece (their sources have been great throughout the BCE saga) was the following:

“The $106-billion pension fund [Teachers] appears concerned by the structure of the auction process, the sources said.”

Not being privy to the “structure” being referred to, one can only assume that the standstill provisions are what is troubling them. But, let’s not lose sight of the fact that Teachers may have figured out that BCE’s management appears to be doing their best to get this deal into the hands of CPP Investment Board, et al. And if you were ever to come up against at pair of brilliant minds, I wouldn’t want to try to outfox Michael Sabia and his public affairs advisor Bill Fox (one-time Toronto Star bureau chief in Washington, as well as PMO press secrectary to former PM Brian Mulroney). Particularly when they’re unhappy with you; Fox is a one-time Irish boxer, after all.

With OMERS, BCIM and Alberta Investment Management now moving to the CPP team, Teachers can still win, but the anticipated 4% break fee will represent ~$1.60 per share. Which means that Teachers needs to bid not just higher than CPP IB, they’d need to pay $1.60/share to CPP IB (out of BCE’s cash on hand) if they win. Money that hurts their IRR.

The BCE board may not go for a back-breaking break fee, but once CPP IB figures out that they’re alone in the bidding war (assuming that’s where this is going), they’ll have some negotiating leverage to get a top end break fee. Something they certainly don’t have today.

BCE will trade down this morning as the arbs figure out that what looked certain just on Friday – a bidding war – is now just a waiting game while CPP IB firms up a formal offer.

MRM (disclosure – I own BCE)