BCE Takeover part 8

Early last week, BCE Inc. (BCE:TSX) was trading at $37.17. With a takeover underway with a price expected to exceed $40, this bid price seemed a bit weak. Even if the deal closes in September, $3/share (plus a dividend payment or two) over a four month period is a pretty good unlevered return for most of us.

I couldn’t figure out why the hedgies weren’t closing the gap. Now, there is some deal risk I suppose, but I can’t see how the deal, a deal, doesn’t happen in the end. And the federal government is predictably keeping their noses out of it. There may not be an auction, mind you, as the terms of the standstill are probably unpalatable for folks such as OTPBB. But a one horse race won’t take us below the $40 level in my mind.

A couple of days go by, and a story about Cerberus still lurking about spikes the stock again. It’s odd, this trading by newspaper reports. Is no one doing any primary work as to the value of BCE in this context? There have been plenty of research reports issued, so most active investors have had a chance to size up the ultimate value…and it’s much higher than the $27 / share the stock was trading at before the first KKR rumour came out.

I enjoyed the recent flurry of “background” information that had been fed to the media by the BCE side. About how hard the special committee was working to ensure an auction, and the absence of any management fingers in the making / baking of this pie. All good spin, but the damage is done. The terms of the standstill appear to be doing us shareholders harm, as no other group is in the process. Teachers is still being kept on the outside, ensuring they can’t tender a hard offer. And Cerberus is still looking for partners, at least according to the reports.

So, as apparently designed by BCE’s management, only one group is doing due diligence. Which usually means that only one bid is going to show up.

It has been almost 2 months since the first story appeared, and this is the best that BCE’s board can do, despite having the assistance of three — count ’em — three investment dealers?

I don’t think it sufficient, and does support the theory that BCE management have a favoured bidder in CPPIB et al….

How is that good for the rest of us? The stock has been weak for almost a month, which is the best way to gauge whether this is going to be a robust or a failed auction. And so far, things are veering towards the failed side of the ledger, and this past weekend’s media stories about Cerberus did nothing to undermine that storyline.

It’s a one horse race, which gives the U.S. class action lawyers plenty of grist for their mill should things not change in the coming weeks.

MRM
(disclosure – I own BCE)