Why I Bought BCE Shares Wednesday

Nov.27.08 | About: BCE Inc. (BCE)

I may end up regretting this, but I bought BCE Inc. (NYSE:BCE) shares on its 35% plunge on Nov. 26. The plunge was caused by some auditors concluding a privatized BCE would not be solvent. What prompted the purchase — admittedly on the spur of the moment — was reading that several analysts think BCE shares are worth $27 to $32 (C$) without the privatization bid and BCE may invoke Plan B, which “features an enormous share buyback and a generous dividend policy,” as Andrew Willis described in his Streetwise blog (which I recommend as a must read for investors).

What’s rather astounding about this bombshell is that it was a bombshell. I don’t recall anyone mentioning that the BCE deal still faced the hurdle of an auditor’s approval. Maybe these things are normally formalities, but KMPG audits two of the biggest lenders to the buyout and one might have surmised some influence from those quarters. It just goes to show the paucity of due diligence in the market and media/analyst coverage (yes, Mr. Fama, markets are inefficient).

I’m not looking to hold BCE long term. I still don’t like its long-term prospects. As I said in July, 2007:

“As far as I can see, it is easier technologically for the cable guys to add telephone service to their package of TV, Internet and wireless than for BCE to add TV to its package of telephone, wireless, and Internet. Getting bandwidth intensive video signals through BCE’s “last mile” of copper wire would seem to be a much greater challenge than tacking telephone service onto the cable company’s pipes into the home.”

Good riddance to the privatization offer. I was never a fan or believer in it, from when BCE executives loaded up on BCE options just days before the bid was announced (no doubt long sold) to the costs imposed upon bondholders, taxpayers, employees, and consumers to the extension of deadlines to the rulings.