Will BCE Deal Collapse Before December?

With BCE Inc. (BCE) trading 20% below its C$42.75 offer price, the Street continues to weigh the possibility that the C$52-billion buyout won’t go through on or before the December 11 expected closing date.

If the deal does collapse, the Ontario Teachers’ Pension Plan could demand the board make a shareholder-friendly move. After all, BCE has more than C$3-billion in cash that came in part from its holding back of dividends. There would also be a C$1.3-billion reverse break fee coming.

This all means BCE could buy back 15% of its shares and increase its previous dividend by 28% to $1.85, according to National Bank Financial analyst Greg MacDonald.

And with a yield in the range of 6% to 7%, he estimates the downside of the deal collapsing is between C$27 and C$30 per share – much closer to where BCE shares are trading now than the amount shareholders are holding out for.

Mr. MacDonald says there is a 70% chance the deal closes, which suggests that the stock is attractive below C$38.50.

He said in a note to clients:

Though funding clearly remains a risk in this environment, we believe the recent settlement of the final funding terms reflects willingness by both the purchasers and banks to complete the deal.