Spin docs busy at BCE deal central

BCE Takeover Part 40

From the very first Globe and Mail scoop on the KKR / BCE rumours (see prior post “BCE takeover – only a matter of time” March 29-07), the BCE saga has reflected all of the best and worst displays of public relations strategies as the PR professionals involved have been trying their darndest to manage the media throughout the long life of the world’s largest LBO transaction.

BCE had PR guru Bill Fox taking care of business, while OTPPB et al relied on John Capobianco and the folks at Edelman. The lead banks (Citigroup, Deutsche, RBS and TD), proving they are stuck in the 1900s in more ways than just their business model, relied on, well, the tried and true angle that fails many a corporate entity in such situations: silence. No backchannels. No counter attacks. No “helping” journalists with their daily need to fill space.

With only TD Bank CEO Ed Clark speaking out, the silence of the other three lead lenders made it easy to be skiddish about the likelihood that the bank syndicate would close on the original term sheet: investors understandably assumed that the silence spoke volumes.

And every time OTPPB Head Jim Leech said “we expect the banks to abide by their commitments”, it only reminded the market that the banks weren’t being very forthcoming about their interest in doing so. The banking universe is trained to keep secrets secret; with regulators at your office each and every day for one reason or another, that makes eminent sense. Silence on the BCE LBO was the default (see prior post “Are the lawyers turning BCE documents?” April 18-08).

Until Friday evening, that is. As evidence that they were well aware that the lenders were forever looking like the “bad guy” on this saga, the lending syndicate hired Kekst and Company, a U.S.-based PR firm, a couple of weeks ago to help manage the ongoing fallout from the BCE LBO.

The choice of hiring a U.S. shop in interesting, but with the WSJ, CNBC, Bloomberg News, rating agencies and key institutional shareholders all based on the East Coast, it makes some sense. Plus, you can surmise which of the four banks got the final say on the New York angle — the one based in the UK, Germany, Canada or the USA?

On the heels of the Supreme Court’s decision, Kekst and Company puts out a simple, but well honed statement:

“New York, NY — June 20, 2008 — Citigroup, Deutsche Bank, Royal Bank of Scotland and Toronto-Dominion Bank, the four banks which have committed to financing the debt portion of BCE, Inc.’s sale to a consortium of investors including Ontario Teacher’s Pension Plans, Providence Equity Partners, Madison Dearborn Partners and Merrill Lynch Global Private Equity, commented on today’s ruling by the Canadian Supreme Court:

‘The banks expect that the transaction will close in accordance with the Definitive Agreement between BCE and the sponsors. We continue to negotiate the financing documents in good faith with the sponsors and stand behind our original commitment to the transaction.'”

Now, in all seriousness, this was new information! The banks stand behind their original commitment? Why then did BCE shares trade more than $4 below the $42.75 deal price, even after the initial Quebec Court ruling that gave the bond holders little hope of stopping the LBO bus that was about to flatten them (see prior post “Genuity “expects BCE deal to close”” May 6-08)?

The spin doctors took that bank “we stand behind” press release, and generated enough buzz over the weekend that several stories appeared in the media this morning (see Andy Willis “On track for August closing“, for example) that made it seem as though the deal was done. All wrapped up. That $42.75 was absolutely coming. Even some equity research analysts took the press release to be gospel this morning:

Genuity Capital Markets said: “BCE LBO wins Court, Bank, and CRTC support”, and bumped the price target to $41 from $35; “Buy”.

GMP Securities said: “Supreme Court upholds Lower Court Decision that had approved the Plan of Arrangement. Lender risk remains – however we believe that their leverage is muted given that the Deal has met required hurdles. Final CRTC approval received; expect Industry Canada approval this week. Moving target price to $42.75, recommend Tender to Offer.”

Standard & Poors was more cautious, and maintained their HOLD rating on the shares: “We expect BCE to open higher today following news that Canada’s Supreme Court overturned an appeals ruling and will allow the private equity acquisition of BCE to proceed as planned. The stock sold off in recent weeks as bondholder claims put the deal in jeopardy. We still see risk to the buyer’s ability to finance the cash-based transaction as currently structured and keep our 12-month target price of $40, a discount to the offer of $43. We look for the pending transaction to close in the second half of ’08.”

But, if you read the Andy Willis story carefully, you’ll have noticed a rather stark sentence: “there are really only two or three contentious issues outstanding”. Golly, that can mean the whole ball of wax in the lending world. Price, terms, structure, use of proceeds from asset sales, timing of subsidiary sales and real estate disposition. Mr. Willis made it clear that the deal was not in the bag, just yet. (Sometimes it pays to ignore the headline writers.)

So, with one banking source putting meat on the bones of the Friday evening bank press release, it should come as no surprise that another source was busy counter-massaging the banks’ message via Reuters right at the market close this afternoon:

Banks funding BCE takeover want concessions: sources

“All options are on the table. Everything you would normally consider is being considered — sticking with the deal, changing the terms, or walking away. It’s all still very much up for discussion,” said one source who declined to be named.

Does that sound like Friday’s press release? Nope. Does it sound like the same source as in the Globe earlier today?:

“For all the noise, it’s worth noting that Citigroup and Deutsche Bank [the lead lenders] have never failed to honour their commitment to a buyout,” said a source working the lenders [sic].

Are these people even on the same deal team? Of course they are; sort of. They certainly aren’t the same unnamed source, but it demonstrates the breadth of comfort that certain members of the bank syndicate have with the deal. Don’t forget, if the deal doesn’t close, the banks don’t lose billions in mark-to-market losses at closing.

And that’s why BCE shares will continue to trade well off that magic $42.75 figure. OTPPB is living the classic “Good Cop, Bad Cop” banking game. One fellow says “we” want to close; then some unnamed source tells Reuters that “we” may still walk. Who do you believe?

This isn’t over yet, even if the Reuters source was talking total nonsense.

Tomorrow, some ideas to bridge the gap.

MRM
(disclosure – I own BCE)