Clear Channel settlement does not mean pollyanna at BCE

BCE Takeover Part 35

As BCE’s stock rose more than $1/share on meaningful volume yesterday, I was grappling for the answer. But, according to the Wall Street Journal, the LBO of Clear Channel (CCU:NYSE) may be back on the rails, after a series of legal skirmishes (see prior posts “Maybe BCE / Ontario Teachers needs JP Morgan” April 30-08 and “Clear Channel ruling will boost BCE shares” March 27-08).

You may ask yourself what that has to do with the OTPPB takeover of BCE (BCE:TSX, NYSE), but that would mean you haven’t been paying attention. The lending syndicates are similar, as has been highlighted in many forums, so the pending death of the Clear Channel deal was seen to be a bad omen for BCE.

As such, with the wind back in the sails of the Clear Channel deal, BCE is rallying – jumping nicely for the first time in weeks.

Not so fast. To get the CCU deal done, the WSJ is reporting a 10% price cut to the original buyout price of $39.10. We’ve ruminated about a BCE price chop in the past (see prior post “Are sad days ahead for BCE shareholders?” February 14-08).

I certainly can see why investors take the CCU news to be positive for BCE, but for the parallel to be entirely accurate, one needs to apply a 10% cut to the proposed $42.75 BCE going-private price, don’t you? At least some type of haircut.

$42.75 less 10% = $38.50. The stock closed at $38.10. We’ve been concerned about the risk/reward profile of the takeover game, and I’m not sure the risks are diminished right now. They may have been altered, but have they been diminished?

The chances of the deal closing appear to be higher than in recent days. But at $42.75?

There is still probably more money to be made from RIM over the next few weeks, just as there was on April 18th at C$122 (see prior post “BCE put options tell a story” April 18-08), than BCE right now. Not that a $4.65 bump wouldn’t be nice if the deal closes at the original $42.75 price, but the odds of that are…?

MRM
(disclosure – I own BCE {RRSP} and RIM)