Bell Canada Deal May Be Affected By Credit Situation

Tightening credit conditions not only lower the chances of dissident shareholders being able to force an increased offer price for Bell Canada Inc. (BCE), but the situation increases the possibility that the deal with a group led by the Ontario Teachers’ Pension Plan will not be funded.

This, from Citigroup analyst Patrick Grenham, who nonetheless thinks the deal will get done, since the capital is already committed.

However, he felt it worthy to remind investors that the stock could fall back to the C$30 pre-takeover trading range if the deal falls through. He also downgraded Bell Canada shares to a “hold” given the risk-reward profile he has laid out. The potential upside for the stock given Teachers’ proposed buyout price of C$42.75 per share is just 5.7%, Mr. Grenham said in a recent note to clients, while lowering his price target to that level from C$44.

He also noted that the buyers need to get through two rounds of regulatory approval, as well as a shareholder vote before the deal is expected to close in the first quarter of 2008.