BCE Deal Faces Several Hurdles

In what may be BCE Inc.’s (BCE) final earnings report as a public company, first quarter results may have been a mixed bag, but they were generally in line with expectations. Investors reacted positively to news that the telecom giant’s business fundamentals appear stable and there have been no material changes that should jeopardize the private equity buyout, giving the stock a bit of a lift. However, BCE shares remain 14% shy of the $42.75 takeover price, despite the company’s indication that it still expects the Ontario Teachers’ Pension Plan-led buyout will close in June.

Analysts are also confident that the buyout will close as planned, but a few questions remain nonetheless. One that should interest investors is the possibility of a June dividend. BCE’s board deferred declaring this quarter’s C$37.50 dividend that would have been payable July 15. UBS analyst Jeffrey Fan thinks BCE’s board will wait until they are more clear on the deal’s specific closing date before making a decision.

He told clients:

While this does not mean BCE will not pay the June dividend, it is less certain whether existing shareholders will actually receive the dividend given the uncertainty around the transaction close date.

Joseph MacKay at Desjardins Securities is optimistic that it will be completed by June 30, but also said it could be extended. The analyst cited his concerns regarding the three events that must occur before it closes: an outcome of the bondholder appeal, filing of documents with the CRTC by May 13, and the big one – funding of the transaction. Mr. MacKay noted that three of the banks involved in the BCE deal (Citibank (C), Royal Bank of Scotland (RBS) and Deutsche Bank (DB)) are involved in litigation over the funding of Clear Channel Communications Inc.’s (CCU) privatization.

He told clients:

Given the BCE transaction has not cleared regulatory and legal hurdles, it is unclear how the three banks and the Teachers’ syndicate will settle on the terms of the funding of the transaction.

RBC Capital Markets analyst Jonathan Allen said investors have nothing to worry about in terms of the pending privatization. He also said that if the CRTC documents are filed on time by BCE’s buyers and if the Quebec Appeals Court rules on the bondholder lawsuit in the next two or three weeks, as he expects it will, BCE shares could narrow significantly to the C$42.75 bid price.

Comments

[northern investor]

I think Monday, May 12th will be a crucial day. Even Mr. Allen, would I am certain admit that the deal could be showing signs of major problems if the CRTC documentation is not filed by then. Monday could see the stock up reasonably well but just as likely down by more than 10% if the transaction's completion looks in jeopardy.