BCE, Inc. Saga Nearing its End

Last week, BCE, Inc. finally put the “For Sale” sign in its window. At the moment, there are two serious bidding groups at the table, both interested in privatizing Canada’s biggest telecom company. The way things look right now, aside from a few speculators, overall Canada only stands to lose from BCE going private.

For starters, Canadian investors are to lose yet another major bellwether stock from the S&P 500/TSX Composite. I have written about it before, but the list is getting uncomfortably longer and longer, threatening to completely marginalize the benchmark.

Then there are Canadian consumers. If BCE, Inc. goes private, it will be through a leveraged buyout. That would mean less money for technological improvements and most of it for servicing Bell Canada’s enormous debt burden. That would also mean that most of the costs would be passed on to consumers through increased prices. Note that BCE currently appears to be trapped between a rock and a hard place, carrying about $11.36 billion in debt, which is offset with a nearly insignificant $513.61 million in cash.

Finally, let’s not forget about Ottawa and the loss of tax revenues from BCE. If and when the company goes private, Ottawa stands to lose a big chunk of change. Although, I have to say, Ottawa sort of deserves it. When federal finance minister Jim Flaherty pulled the Halloween income trust “trick or treat,” BCE, Inc. was one of the most directly impacted corporations. It could be argued that not being able to convert into an income trust may just as well have served as a death sentence for the company.

So now, the only thing left for Michael Sabia, BCE’s CEO, to do is to try to negotiate the best price. One group is suggesting a buyout price between $40.00 and $42.00, while the other is offering between $28.00 and $40.00. The fourth variable in the equation is Ontario Teachers Pension Plan, which may be interested in a bid of its own. So, the best Sabia can do is to pit the bidders against one another in a price war and score a decent price for the stock.

Investors should consider BCE’s recent market performance a supernova surge just before the dying star expires. If you are a current shareholder, you should wait for the merger talks to conclude and tender your shares back to whoever ends up buying the company. By the looks of it, you could end up with a tender price of $40.00 or better. If you are a speculator, consider a short- term trade, provided you can get an entry price in the lower $30.00 range.