BCE / Teachers: A Review

BCE closed today on the TSX at $38.85 – down $0.25 after dipping as low as $37.55. This is way below the $42.75 takeover price – just over 9.1% below, in fact – so, given that the takeover is a matter of great pith and moment for preferred share investors, I thought I’d review what’s happened so far.

On June 30, I reported on the takeover and my puzzlement regarding the inclusion of the preferred shares in the offer. The Teachers press release trumpetted:

The purchaser has obtained a debt commitment to finance the transaction subject to usual terms for these types of financings.

It should be noted that the “Purchaser” is not Teachers, but a numbered company set up by it and its partners.

On July 17, the Great Sub-Prime Panic of ’07 got rolling in earnest:

Mind you, a little safety could be just what the doctor ordered down south! Bear Stearns has warned that the smaller of its two famous hedge funds is a total write-off, and the other one isn’t much better. Take this lesson to heart: just because a firm is good at selling investments doesn’t mean that they’re necessarily good at running investments.

On July 26, I had to admit:

I couldn’t resist checking the definitive BCE / Teachers’ Agreement

6.4(9): The Purchaser acknowledges and agrees that its obtaining financing is not a condition to any of its obligations hereunder, regardless of the reasons why financing is not obtained or whether such reasons are within or beyond the control of the Purchaser. For the avoidance of doubt, if any financing referred to in this Section 6.4 is not obtained, the Purchaser will continue to be obligated to consummate the Arrangement, subject to and on the terms contemplated by this Agreement.

On July 27 I reported that:

Citi Investment Research cut its recommendation, citing growing risks to its financing.

Later in that post, I speculated:

I’ve thought the issue in the context of what a massive break-fee-loss would mean to Teachers, and come to the conclusion that I don’t know enough about the issue. It would seem to me reasonable that there might be provisions regarding financing in the consortium agreement, to the effect that, if the deal fails on financing, the loss would be borne by Teachers financial partners, Providence Equity Partners Inc. and Madison Dearborn Partners, LLC. After all, they’re the financial muscle for the deal! It may be that such a provision is why Mr. Lamoureux is so sanguine … but we will just have to sit back and wait and see! In the meantime, I highly doubt that I’ll be throwing chips down on that table!

The plot thickened on July 31:

there are musings that the USD 37.2-billion takeover of TXU is at risk, with the suddenly nervous financiers tempted to pay a billion bucks to get out of the deal. Observant readers will not that both amounts are oddly reminiscent of the BCE / Teachers’ agreement, but the musings are rebutted on another news service. Trial balloon? Chatter from clerks? Who knows? There would be a big reputational hit to take

On August 2, BCE announced:

that all necessary filings have now been made for regulatory approval of the proposed acquisition of BCE by an investor group led by Teachers’ Private Capital, the private investment arm of the Ontario Teachers’ Pension Plan, Providence Equity Partners Inc. and Madison Dearborn Partners, LLC. These include filings with Industry Canada, the Canadian Radio-television and Telecommunications Commission, the Canadian Competition Bureau, the U.S. Department of Justice and Federal Communications Commission and six U.S. states.

On August 3, I reported: 

Speaking of Telus, they released their quarterlies today, and noted:

TELUS in July continued its assessment of whether it should potentially make a competing offer for BCE. TELUS has concluded this assessment and it does not intend to submit a competing offer to acquire BCE.

On August 8, BCE announced:

that a special shareholder meeting will be held on Friday, September 21, 2007, at 9:30 a.m. in Montreal. At the special meeting, holders of common and preferred shares registered at the close of business on August 10, 2007 will be asked to vote on the privatization of BCE by, among others, Ontario Teachers’ Pension Plan Board and affiliates of Providence Equity Partners Inc. and Madison Dearborn Partners, LLP.

Which brings us, basically, to today, with speculation on other buy-outs, the common 9.1% below the take-over price and a press release from Teachers:

In response to media inquires, officials at Ontario Teachers’ Pension Plan and their partners Providence Equity Partners Inc. and Madison Dearborn Partners, LLC, stated today that they remain committed to the terms of the definitive agreement reached on June 30, under which the investment partners would acquire BCE. The transaction is subject to shareholder and regulatory approvals.

The press release has been picked up by Reuters and Bloomberg. Bloomberg also reports that

  • Edward Jones & Co. has cut the BCE rating to “Sell” from “Hold”
  • An analyst at Three Macs said BCE “has definitely become higher risk than it was even two weeks ago because of the transaction risk,”
  • A National Bank Financial analyst said “I still think this deal has lower than average risk of breaking” and rates the shares “Sector Perform”

Bloomberg did not disclose long-term track records for any of these analysts.

What do I say? I say BCE Prefs are a crapshoot on credit. I don’t play craps with investment money.

BCE has the following preferred shares outstanding: BCE.PR.A, BCE.PR.C, BCE.PR.E, BCE.PR.F, BCE.PR.G, BCE.PR.H, BCE.PR.I, BCE.PR.R, BCE.PR.S, BCE.PR.T, BCE.PR.Y & BCE.PR.Z

11 Responses to “BCE / Teachers: A Review”

  1. [...] BCE has filed its proxy statement and disclosed that financing for the takeover is coming from Citigroup, Deutsche Bank, The Royal Bank of Scotland and the Toronto-Dominion Bank. Now, it’s very nice to have financing committments, but they don’t necessarily mean anything. The Sallie Mae takeover is in trouble, with the borrowing buyers attempting to use an escape clause and the salivating sellers trying to slam it shut. Years of litigation ahead on that one, I’ll bet. [...]

  2. [...] TD Bank released its results today and claimed that its underwriting of the BCE / Teachers deal is a really good piece of business. Well gee, if the salesman says it’s good, maybe we should all rush out and buy some, eh? There’s another one that we’ll just have wait and see about … at today’s close of 39.67, BCE common is still 7.2% below deal price, so those who are confident the deal will get done as described still have lots of chance to make some good money … at a higher yield than ABCP paper! [...]

  3. [...] The BCE saga, last reviewed about five weeks ago has taken another twist: the bondholders are going to court: They want the deal declared a “reorganization” under the terms of the 1976 and 1996 trust indentures, which would require bondholder approval. [...]

  4. [...] More Teachers’ / BCE news! I don’t think anybody will be surprised to learn that: The arrangement was approved this morning at a Special Meeting of shareholders by more than 97% of the votes cast by holders of common and preferred shares, voting as a single class, greatly exceeding the required 66 2/3% approval. Of the total outstanding common and preferred shares, 62.5% were voted at the meeting either in person or by proxy. [...]

  5. [...] This is an unusual quarter. The basic problem is the BCE/Teachers deal, which had the effect of changing the BCE preferreds from junk issues into speculations on a takeover bid at blue-chip prices. This had a marked effect on returns for these issues, which ranged from a low of +9.52% (BCE.PR.H) to +23.52% (BCE.PR.G). The BMOCM-50 is 8.05% BCE issues as of 2007-9-30, but let’s look at the CPD holdings, which are publicly disclosed: [...]

  6. [...] Remember BCE? Geez, it’s been a long time since I’ve discussed BCE. There was a rather interesting story today about Cerberus and United Rentals: “This deal was expected to close sometime this week,’’ wrote Stephen Volkmann, an analyst with J.P. Morgan Securities Inc. in New York. “The banks were struggling with selling the associated debt offering.’’ [...]

  7. [...] A decision regarding the attractiveness of the conversion privilege requires a certain amount of scenario analysis! The first consideration is whether or not the Teachers’ deal will proceed. [...]

  8. [...] More speculation in the press about the BCE / Teachers deal: The Montreal-based company’s shares were down for the fifth consecutive trading day, losing 16 cents to $36.37 Friday. [...]

  9. [...] Sean Silcoff of the Financial Post writes a very good article urging restraint with respect to the BCE / Teachers deal (link courtesy of Financial Webring Forum): A sure thing? A lot of smart money doesn’t think so, fearing the deal could fall apart. After all, it requires about $33-billion in new debt, and the banks that committed the funds last summer are in worse shape than they were then, amid the bleakest credit crisis in 20 years. The lead backer, Citigroup, is one of the worst basket cases; it can hardly afford to take on more LBO debt. The LCDX, an index of high-yield loans, is trading at $90, implying a 10% discount for holders of high-yield debt. [...]

  10. [...] And, in news that will be not be welcomed by those speculating that BCE / Teachers will succeed, another LBO in the States has bitten the dust … but for a novel reason: Blackstone Group LP’s $6.6 billion leveraged buyout of credit-card payments processor Alliance Data Systems Corp. may collapse because bank regulators have placed “unacceptable’’ requirements on the acquisition. [...]

  11. [...] The deal has been previously reviewed on PrefBlog. [...]

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