BCE Inc. / Bell Canada Enterprises (NYSE:BCE) is recommending that the all cash deal by Ontario Teachers Pension Plan be accepted. Long suffering BCE shareholders who have seen BCE hemorrhage business to more nimble competitors are finally being rewarded with a supposedly high cash offer. Goldman Sachs (NYSE:GS) stands to earn large fees and bragging rights to what many believe is the biggest leveraged buyout that the planet has ever seen.
The transaction begs the question: "Did the guy who spent the most money really do the right thing?" Confirmed deal junkies such as Cerberus and KKR used various forms of non cash structures to help mitigate the leverage risk. Cerberus and KKR have many many deals in their financial stables. If they felt they needed to hedge their bets, I would not have argued with them.
Investors typically have an "In cash we trust - all else is B*#LS*#T" approach. Therefore, smart financial engineering proved to be an incredibly large tell in this latest round of financial poker.
Investors were overjoyed with the board recommended offer and fed up with BCE's history. The sad reality is that the BCE Board could not find a way to create value for its investors. Ontario Teachers Pension Plan, along with Providence Equity Partners and Madison Dearborn Partners, will now have to fix BCE and then return to the market with a higher PE but more sell-able narrative.
We will see who really wins. I am not sure that selling low today and buying high tomorrow is the correct formula for wealth creation.
BCE 1-yr chart: