BCE Inc. (NYSE:BCE) bondholders, who went to court to try and block the telecom giant’s C$52-billion leveraged buyout, should be pleased with the company’s plans going forward.
On Friday, BCE outlined its strategy to return value to shareholders following the collapse of its leveraged buyout, which included a commitment to maintain a strong balance sheet and liquidity. And while the company will eventually assess the need for M&A, this is unlikely in the near future as very few operational and strategic changes are expected, according to CreditSights.
Analysts at the credit research firm believe the announcement was favourable for bondholders and not necessarily for shareholders.
While the company put off discussions on its dividend payout policy and capital structure, the announcement made clear that the company will maintain a very conservative capital structure with a high degree of cash, at least for the time being.
The modest share buyback plan will almost certainly be a disappointment to some shareholders, the analysts added. CreditSights rates BCE shares “marketweight” and its credit “overweight.”
The modest initiatives to return value to shareholders include reinstating the C$0.36.5 per share dividend, which represents less than C$300-million in cash per quarter, while the 40 million share repurchase implies a cash outlay of roughly C$850-million. That compares to a 12-month free cash flow of C$2.917-billion as of the third quarter, and C$2.578-billion of cash and cash equivalents on its balance sheets, CreditSights noted.
The firm pointed out that investment grade Canadian carriers, including BCE before the leveraged buyout agreement, have traditionally kept a very low level of cash on their balance sheet.
The modest dividend payout, modest share repurchase authorization, continued solid cash generation, and the significant amount of cash of the balance sheet indicate that the company is likely to maintain a very high level of cash.
While BCE cited the need to fund its maturing debt obligations, CreditSights noted that the company’s debt schedule is very manageable with C$1.5-billion and approximately C$1-billion of public debt maturing in 2009 and 2010, respectively.