BCE Takeover Almost Wrapped Up

We are very close to the BCE takeover being completed, although there is still some uncertainty given the late closing date (BCE expects it to be December 11 now.)

BCE Inc. says it has struck a final deal for its $35-billion takeover by a buyout group, and that the price will remain at $42.75 a share.

The announcement Friday by the Montreal telecommunications company appears to end months of speculation that the price would have to be lowered to satisfy bankers financing the buyout group, which is led by the Ontario Teachers Pension Plan and U.S.-based Providence Equity Partners...

BCE said earlier this week it would defer its $294-million second-quarter common share dividend payout, a move analysts see as a concession to the banks. The company said Friday it will pay no dividends to common shareholders before closing, which it now by Dec. 11, rather than by the end of the third quarter.

This suggests that any third- and fourth-quarter payouts would also remain in the company's coffers.

It looks like the company won't be paying any dividends for the subsequent quarters. I don't know what long-term shareholders think about the dividend being cut, but risk arbitrage investors such as myself could care less about the dividend.

The BCE example illustrates how an M&A deal can be delayed quite significantly. What looked like was a certain close in the first quarter of 2008 looks like to be closing almost 9 months late. This is one of the reasons I don't think it's worth contemplating M&A where the takeover premium is below, say, 5%. What seems good initially can end up being a small return with a long delay.

The stock market still thinks there is risk in the deal, as evidenced by the share price still hovering around $39.74 on the TSX, which is more than 5% below the takeover price. Even if you adjust for the opportunity cost of tying up capital until (possibly) December, the 5% gap seems quite large.

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2 Response to BCE Takeover Almost Wrapped Up

July 4, 2008 at 7:38 PM

These M&A/tender offer failures have spelled doom for the companies involved. Look at MGM's failed Dutch auction with Dubai World. The stock has dropped from $100 to $28 with no bottom in sight.

July 5, 2008 at 9:18 AM

A lot of the mergers that were cut last year were near the peak of the cycle with high valuations. So it's not surprising that a failure results in big problems. To make matters worse, my opinion is that private equity was in a bubble like they never have been so they bid prices that were very high...

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