BCE: Worth Considering

I am considering whether to invest in BCE (ticker: BCE). A takeover deal has been announced for C$42.75 (note: I'm looking at the Canadian info; the US numbers will be slightly different) but the stock is trading right now at $C38.84. The deal is expected to close early next year (Q1 2008), while shareholder vote will happen on September 21, 2007.

Obviously the market is concerned that the deal won't go through since it involves raising a lot of debt. I think the chance of the deal failing is pretty low (BCE is a pretty solid telecom in Canada and if bond investors would want to finance anything, it'll be something like Bell Canada). You are basically looking at around 10% return in 9 months (excluding transaction costs and any potential dividends). The downside is that the deal won't go through and the stock price falls down back to whatever it was before the deal. There is also a risk that the deal may be delayed if financing can't be raised in time (I view this as unlikely).

If I had a lot of money, I would consider taking a position but I think I can find better opportunities (especially if this market keeps selling off pricing securities lower) so I'm going to pass for now. If I don't find anything in a few months, I'll revisit this strategy.

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