The C$800-million break fee Bell would have to pay the group led by the Ontario Teachers’ Pension Plan if it abandons its C$42.75 cash offer, is one of several barriers Telus faces. Factoring this additional cost, Mr. Fan thinks the maximum Telus could pay for Bell is C$46.75 per share, worth C$3 in upside after the break fee.
Some of the reasons he said a Telus-Bell tie-up would be hard to support include: The expected sell-off of wireless assets in a merger of the two companies would limit synergies; Telus would have to pay a C$1-billion reverse break fee if pulled out of a deal; The benefits favor Bell shareholders.
Mr. Fan raised his price target for Bell shares to C$42.75 from C$40 to reflect Teachers’ offer price and maintained Telus’ at C$70.